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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