A Firm Uses Only Debt and Equity in Its Capital

question 24

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of debt is 45 percent. The firm could issue new bonds at a yield to maturity of 10 percent and the firm has a tax rate of 30 percent. If the firm's WACC is 12 percent, what is the firm's cost of equity?

• A)16.09 percent
• B)15.63 percent
• C)15.21 percent
• D)14.57 percent

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Definitions:

Coefficient of Determination

A statistical measure used in the context of predictive models that indicates the proportion of the variance in the dependent variable predictable from the independent variable(s).

Regression Equation

A statistical formula that models the relationship between a dependent variable and one or more independent variables, predicting values within a dataset.

Advertising

The activity or profession of producing advertisements for commercial products or services, aimed at influencing the buying behavior of consumers.

Regression Lines

lines of best fit used in statistical analysis to represent the relationship between a dependent variable and one or more independent variables.