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:

Isolation

The process or state of being separated from others, which can be physical, social, or emotional.

Geographical Radiation

The spread of a group of organisms into different habitats across different geographical areas, often resulting in the diversity of the group adapting to various environments.

Heritable Traits

Characteristics or qualities that are passed from parents to offspring through the genes.

Old Stone Age

Also known as the Paleolithic Era, the earliest period of human history characterized by the use of rudimentary stone tools.