Salmon Inc

question 88

Multiple Choice

Salmon Inc. has debt with both a face and a market value of $3,000. This debt has a coupon rate of 7% and pays interest annually. The expected earnings before interest and taxes is $1,200,the tax rate is 34%,and the unlevered cost of capital is 12%. What is the firm's cost of equity?

• A) 13.25%
• B) 13.89%
• C) 13.92%
• D) 14.14%
• E) 14.25%

---

Definitions:

Costs of Issuing

Expenses associated with the issuance of stocks or bonds, including underwriting, legal, and registration fees.

Goodwill

An intangible asset that arises when a company is purchased for more than the fair value of its net identifiable assets, representing aspects like reputation, brand, and customer relationships.

Journal Entry

A record in accounting that represents a transaction, showing the accounts and amounts debited and credited, used to transfer values and maintain the ledger.

Consolidated Balance Sheet

A financial statement showing the combined assets, liabilities, and shareholders' equity of a parent company and its subsidiaries.