A fiRm Has Zero Debt in Its Capital Structure

question 80

Multiple Choice

A firm has zero debt in its capital structure.Its overall cost of capital is 10%.The firm is considering a new capital structure with 60% debt.The interest rate on the debt would be 8%.Assuming there are no taxes or other
Imperfections, its cost of equity capital with the new capital structure would be ______ .

• A)9%
• B)10%
• C)13%
• D)14%
• E)None of the above.

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Definitions:

Finished Goods Inventory

The stock of completed products that are ready to be sold but have not been sold yet.

Direct Material Requirements

The specific materials and quantities needed for the production of goods.

Budgeted Production

The total amount of products that a company plans to produce over a certain period, according to its budget.

Finished Goods Inventory

The total value of products that are completed and ready for sale but have not yet been sold.