Learn and Earn Company Is Financed Entirely by Common Stock

question 68

Multiple Choice

Learn and Earn Company is financed entirely by common stock that is priced to offer a 20% expected return.If the company repurchases 50% of the stock and substitutes an equal value of debt yielding 8%,what is the expected return on its common stock after refinancing?

• A)32%
• B)28%
• C)20%
• D)14%

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Definitions:

Self-Incompatibility

A mechanism in plants that prevents self-fertilization and encourages cross-pollination by rejecting pollen from the same or genetically similar individuals.

Hermaphroditic

Describes an organism that possesses both male and female reproductive organs, allowing it to perform both roles in reproduction.

Allele Frequency

The proportion of all copies of a particular gene in a population that are of a given allele type, influencing genetic diversity and evolution.

Hardy-Weinberg Theorem

A principle that states allele and genotype frequencies in a population will remain constant from generation to generation in the absence of other evolutionary influences.