Lauterbach Corporation Uses No Debt,has a Beta of 1

question 7

Multiple Choice

Lauterbach Corporation uses no debt,has a beta of 1.10,and its tax rate is 40%.However,the CFO is considering moving to a capital structure with 30% debt and 70% equity.The risk-free rate is 5.0% and the market risk premium is 6.0%.By how much would the firm's cost of equity change as a result of altering its capital structure?

• A)1.53%
• B)1.70%
• C)1.87%
• D)2.05%

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Definitions:

Family Empowerment Model

A strategy aimed at strengthening families’ capacities to act on their own behalf and improve their child's well-being through access to information, resources, and support.

Worldview

The fundamental cognitive orientation of an individual or society encompassing all the beliefs and values that shape how they interpret the world and interact with it.

Hierarchical Structure

A hierarchical structure is an organizational layout where individuals or elements are ranked according to levels of importance or authority.

Principle of Wholeness

A concept suggesting that systems or entities are more than the sum of their parts and should be viewed as complete wholes.