The Backwoods Lumber Co

question 11

Multiple Choice

The Backwoods Lumber Co. has a debt-equity ratio of .80. The firm's required return on assets is 12% and its cost of equity is 15.68%. What is the pre-tax cost of debt based on MM Proposition II with no taxes?

• A) 6.76%
• B) 7.00%
• C) 7.25%
• D) 7.40%
• E) 7.50%

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Definitions:

Common Measures Bias

A bias that occurs when survey respondents use common scales to make their answers seem more socially acceptable or favorable.

Cognitive Bias

A systematic pattern of deviation from norm or rationality in judgment, whereby conclusions about other people and situations may be drawn in an illogical fashion.

Performance of Divisions

Evaluation of each segment or department within a company based on their financial results, productivity, and efficiency.

Cognitive Bias

An organized tendency to deviate from normal or logical thinking in making judgments, leading to conclusions about people and situations that are drawn illogically.