An All-Equity Firm Has a Return on Assets of 13

question 36

Multiple Choice

An all-equity firm has a return on assets of 13.3 percent.The firm is considering converting to a debt-equity ratio of .48.The pretax cost of debt is 8.6 percent.Ignoring taxes,what will the cost of equity be if the firm switches to the levered capital structure?

• A)16.01 percent
• B)15.28 percent
• C)16.60 percent
• D)17.03 percent
• E)15.56 percent

---

Definitions:

Unemployment Insurance

A government-provided financial assistance program for individuals who have lost their jobs, offering temporary financial support.

Monetary Transfer

The process of moving money from one entity to another, often as a method of payment, financial support, or in the form of aid.

Means-Tested

Refers to a method of determining eligibility for government assistance based on the income and assets of an applicant, ensuring aid only goes to those in financial need.

Dependent Children

Minors who rely on adults, usually their parents, for financial support and caregiving.