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

question 18

Multiple Choice

A firm has a debt-to-equity ratio of 1.If it had no debt, its cost of equity would be 12 percent.Its cost of debt is 9 percent.What is its cost of equity if there are no taxes?

• A)21 percent
• B)18 percent
• C)15 percent
• D)16 percent

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Definitions:

Factory

A building or set of buildings where goods are manufactured or assembled chiefly by machine.

Ending Inventory

The cumulative worth of products on offer for sale when an accounting cycle ends.

Gross Margin

The gap between the income from sales and the expense of goods sold, represented as a proportion of sales income.

Net Sales

The revenue from sales of goods or services after deducting returns, allowances, and discounts.