Suppose Two Firms Are Exactly the Same Except Firm a Has

question 50

Multiple Choice

Suppose two firms are exactly the same except Firm A has no debt in its capital structure and Firm B has 50% debt in its capital structure. Firm A has a WACC of 15%. If Firm B's cost of debt is 10% (after-tax value) , what must Firm B's cost of equity be to have the same WACC as Firm A?

• A)15%
• B)20%
• C)12.5%
• D)25%

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Definitions:

Preferred Narrative

This is an individuals' chosen story or narrative about their life, often constructed in a way that highlights certain experiences and values over others.

RAM

Stands for Random Access Memory, a type of computer memory that can be accessed randomly; any byte of memory can be accessed without touching the preceding bytes.

Machine Language

The fundamental language consisting of binary code that can be directly understood and executed by a computer's central processing unit (CPU).

Pascaline

An early mechanical calculator invented by Blaise Pascal in the 17th century, capable of performing addition and subtraction.