A Firm's Return on Assets Is 12 Percent and the Cost

question 52

Multiple Choice

A firm's return on assets is 12 percent and the cost of the firm's debt is 7 percent.Given a 0.7 debt-equity-ratio, what is the levered cost of equity? Assume that there are no taxes.

• A)7 percent
• B)12 percent
• C)13.6 percent
• D)15.5 percent

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Definitions:

Agency Fund

An agency fund is a fiduciary account held by a governmental unit that contains resources received and held as an agent for others, to be expended or invested according to the principal's direction.

Plant Assets

Long-term tangible assets used in the operations of a business that are not intended for resale.

Expenditures

Outflows of cash or other valuable assets from a person or company to pay for goods or services.

Encumbrances

Claims, liens, or charges on property or funds that affect or limit their use until the encumbrance is lifted.