An Unlevered Firm Has Expected Earnings of $37,584 and a Market

question 68

Multiple Choice

An unlevered firm has expected earnings of $37,584 and a market value of equity of $324,000.The firm is planning to issue $65,000 of debt at 6.6 percent interest and use the proceeds to repurchase shares at their current market value.Ignore taxes.What will be the cost of equity after the repurchase?

• A)12.85%
• B)13.58%
• C)13.40%
• D)12.04%
• E)12.48%

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Definitions:

REM Sleep

A sleep phase characterized by rapid eye movement, during which vivid dreams commonly occur, and is thought to play a role in learning and memory processes.

Sleep Apnea

A serious sleep disorder that occurs when a person's breathing is interrupted during sleep, leading to poor sleep quality and other health issues.

Insomnia

A common sleep disorder that involves difficulty falling asleep, staying asleep, or obtaining restorative sleep, leading to daytime impairments.

Night Terrors

Intense episodes of fear that occur during deep, non-REM sleep, often accompanied by screaming, thrashing, and a heightened state of arousal.