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:

Telecommunication Companies

Businesses that provide services related to communications, such as telephone, internet, and cable services, often through a network of satellites and cables.

BBC

The British Broadcasting Corporation, a public service broadcaster in the United Kingdom known for providing news, education, and entertainment.

Government Approval

A formal endorsement by a relevant authority to allow policies, projects, or activities to proceed.

Private Corporation

A business owned by private individuals or shareholders and operated for profit, independent of state control.