Assume a Firm Is Financed with 30% Debt on Which

question 2

Multiple Choice

Assume a firm is financed with 30% debt on which it pays interest of 9%.What is the expected return on equity if the expected return on assets is 14%? Ignore taxes.

• A) 16.14%
• B) 17.86%
• C) 14.92%
• D) 15.50%

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Definitions:

Statistical Tests

Procedures for making decisions about a population based on sample data, often used to test hypotheses.

Real Effect

The true impact or influence observed in an experiment or study, as opposed to effects seen by chance or due to confounding variables.

Possibility of Error

The probability that a statistical inference or decision made might be incorrect due to the limitations of sampling or experimental design.

Statistical Significance

The probability that an observed difference or relationship exists in a population, not just in the sample studied.