A Firm Has a Debt-To-Equity Ratio of 1

question 33

Multiple Choice

A firm has a debt-to-equity ratio of 1.Its levered cost of equity is 16%,and its cost of debt is 8%.If there were no taxes,what would be its cost of equity if the debt-to-equity ratio were zero?

• A)8%
• B)10%
• C)12%
• D)14%

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Definitions:

Productivity Factors

Variables that influence the output of production, including the quality of labor, technology, and the efficiency of processes.

Mean Earnings

The average income earned by individuals in a specific group, calculated by dividing the total income of the group by the number of individuals.

Profit-Seeking Employers

Refers to businesses or individuals that aim to achieve the highest possible profits from their operations.

Wage Differential

The difference in wages between individuals or groups due to varying characteristics such as occupation, location, or skill level.