A Firm Has Zero Debt in Its Capital Structure

question 47

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) 14%.
• C) 13%.
• D) 10%.

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Definitions:

Axon

A long, slender projection of a nerve cell that typically conducts electrical impulses away from the neuron's cell body.

Endorphins

Naturally occurring peptides in the brain that act as neurotransmitters to reduce pain sensation and produce feelings of euphoria.

Pain Messages

Neural signals that convey discomfort sensations from the body to the brain, typically resulting from injury or illness.

Axons

Long, slender projections of nerve cells which conduct electrical impulses away from the neuron's cell body to other neurons, muscles, or glands.