The Current Market Rate of Return Is 12% and the Risk-Free

question 36

Multiple Choice

The current market rate of return is 12% and the risk-free rate is 4%. You have been given the job of determining your firm's cost of capital components. The company has 1 million shares outstanding with a current value of $22.50 per share. The debt represents 30% of the capital structure and the yield to maturity is 12%. The b of the equity is 1.4 and the tax rate if 30%. What is the market value of debt and its' net cost to the firm?

• A) 9,642,857; 8.4%.
• B) 9,642,857; 12%.
• C) 6,750,000; 8.4%.
• D) 6,750,000; 12%.
• E) 4,725,000; 12%.

Distinguish between annually, cyclically, and functionally balanced budgets and their economic rationales.

Recognize the historical trends and policy shifts in U.S. budget deficits and national debt.

Evaluate the impact of government spending and tax policies on economic cycles.

Understand the political and economic considerations in creating and implementing the federal budget.

---

Definitions:

Profits

The financial gain obtained when the revenue generated from business activities exceeds the expenses, costs, and taxes needed to sustain those activities.

Economic Effects

The influence of various factors, including policies, market shifts, and external events, on the economy's performance, structure, and behavior.

Income Transfer

The reallocation of money from one group to another through mechanisms like taxes, subsidies, welfare payments, or other social assistance programs.

Supply Curve

A graph showing the relationship between the price of a good and the amount of the good that suppliers are willing to sell.