Assume a Firm Is Financed with 50% Safe Debt at a Cost

question 25

Multiple Choice

Assume a firm is financed with 50% safe debt at a cost of 5%, and 50% equity. The firm has a market value of $20 billion and promises a 12% ($2.4 billion) return. In a world with no taxes,
What is the firm's price/earnings ratio? Round your answer to the nearest hundredth.

• A)10.53
• B)8.33
• C)7.92
• D)14.29

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