Firm L Has Debt with a Market Value of $200,000

question 20

Multiple Choice

Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what is Firm L's cost of equity?

• A) 11.4%
• B) 12.0%
• C) 12.6%
• D) 13.3%
• E) 14.0%

Identify the patterns and trends in U.S. productivity and GDP growth historically.

Understand the concept and implications of industrial policy and clusters in economic development.

Understand the relationship between bond coupon rates and their sensitivity to interest rate changes.

Comprehend the factors that influence the yield to maturity and expected returns on bonds.

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Definitions:

Energy-efficiency

The goal or method of reducing the amount of energy required to provide products and services.

Ecologically Sustainable

Practices and processes that preserve environmental resources for future generations while meeting current needs.

Renewable Energy

Energy from resources that are naturally replenishing, such as solar, wind, water, and geothermal heat.

Short-termism

The concentration on short-term projects or objectives for immediate profit at the expense of long-term security.