A Firm Has an Expected Return on Equity of 16

question 58

Multiple Choice

A firm has an expected return on equity of 16% and an after-tax cost of debt of 8%.What debt-equity ratio should be used in order to keep the WACC at 12%?

• A) .50
• B) .75
• C) 1.00
• D) 1.50

Explain the concept of exchange rate risk and its types such as transaction, translation, and economic exposure.

Describe the operation of the foreign exchange market and its significance to global trade.

Understand the theories of purchasing power parity (PPP) and interest rate parity (IRP) and their application in predicting currency movements.

Understand the stages and impacts of aging on cognitive and physical abilities.

---

Definitions:

Monopolistic Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for significant differentiation and some degree of market power.

Long Run

A period of time in which all factors of production and costs are variable, allowing companies to adjust all aspects of their operations.

Economic Profits

Economic profits are the financial gains that occur when the revenue from business activities exceeds the costs, expenses, and the opportunity costs of all resources employed.

Monopolistically Competitive

Describes a market structure where many firms sell products that are similar but not identical, leading to competition based on product differentiation, price, and marketing.