A Firm Has a Debt-Equity Ratio of 1

question 45

Multiple Choice

A firm has a debt-equity ratio of 1.Its cost of equity is 17.4 percent and its pretax cost of debt is 7.2 percent.Assume there are no taxes or other imperfections.What would be its cost of equity if the debt-equity ratio were zero?

• A)8.8%
• B)10.9%
• C)12.3%
• D)13.1%
• E)11.6%

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Definitions:

Operant Conditioning

A learning principle that behaviors are influenced by their consequences, including reinforcements and punishments.

Behavior Modification

A process of changing or shaping behavior through various techniques and strategies, often based on principles of learning and conditioning.

Shaping

A behavioral technique involving the reinforcement of successive approximations of a desired behavior until the final target behavior is achieved.

Reinforces

Stimuli that strengthen or increase the likelihood of a behavior by being presented as a consequence of that behavior.