A Firm Has a Debt-To-Equity Ratio of 0

question 21

Multiple Choice

A firm has a debt-to-equity ratio of 0.50.Its cost of debt is 10%.Its overall cost of capital is 14%.What is its cost of equity if there are no taxes?

• A)13%
• B)16%
• C)15%
• D)18%

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Definitions:

Bad Debt Expense

Represents the cost associated with accounts receivable that a company deems uncollectible, affecting the net income on its income statement.

Aging of Accounts Receivable

A process of categorizing accounts receivable based on how long they have been outstanding to estimate potential uncollectible amounts.

Allowance for Doubtful Accounts

An accounting provision made by companies to account for anticipated losses due to customers' failure to pay owed amounts.

Net Realizable Value

The estimated selling price in the ordinary course of business, minus reasonably predictable costs of completion, disposal, and transportation.