The Required Rate of Return on Montreal Computing Power's Equity

question 58

Multiple Choice

The required rate of return on Montreal Computing Power's equity is 15% and the yield on their debt is 7%.There are no taxes and all cash flows are perpetuities.If the value of the debt is $1,000 and value of the equity is $1,000, what level of earnings must Montreal Computing Power earn in order to support the current valuation?

• A)$290
• B)$300
• C)$330
• D)$220

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Definitions:

Banking Transaction

An operation that involves the movement of money in or out of a bank account.

Make Deposit

The action of placing money into a bank account or financial institution.

Double-Entry Accounting

An accounting system that records each transaction with equal and opposite effects in at least two different accounts, ensuring accuracy.

Debits and Credits

The fundamental elements of accounting that represent the entries made in accounts to reflect increases or decreases in balances.