Al's Pub Has Debt with Both a Book and a Market

question 245

Multiple Choice

Al's Pub has debt with both a book and a market value of $120,000. This debt has a coupon rate of 9% and pays interest annually. The expected earnings before interest and taxes are $42,600, the
Tax rate is 34%, and the unlevered cost of capital is 11%. What is the firm's cost of equity?

• A) 11.90%
• B) 12.07%
• C) 12.11%
• D) 12.15%
• E) 12.18%

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Definitions:

Variation

Variation refers to the distribution of data points or values within a dataset, indicating how much the data differ from each other.

Qualitative Variables

Variables that express descriptive, non-numerical qualities or categories.

Indicator Variables

Indicator variables, also known as dummy variables, are numeric variables used in statistical models to represent categorical data, with values typically 0 or 1 indicating the absence or presence of a characteristic.

Regression Model

A regression model is a statistical approach used to describe the relationship between a dependent variable and one or more independent variables.