The Pizza Palace Has a Cost of Equity of 14

question 247

Multiple Choice

The Pizza Palace has a cost of equity of 14.4% and an unlevered cost of capital of 10%. The company has $18,000 in debt that is selling at par value. The levered value of the firm is $32,000
And the tax rate is 35%. What is the pre-tax cost of debt?

• A) 4.73%
• B) 6.18%
• C) 6.59%
• D) 7.38%
• E) 9.92%

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Definitions:

Analogies

Cognitive processes that identify similarities between two different ideas or objects, facilitating understanding and problem-solving.

Natural Selection

The process by which biological traits become more or less common in a population due to consistent effects on the survival and reproduction of their bearers.

Evolutionary

Pertaining to the process of natural selection and adaptation over generations, affecting the development of biological species.

Information Processing

A cognitive approach that describes the ways in which human beings encode, store, and retrieve information.