If a Firm Is Unlevered and Has a Cost of Equity

question 30

Multiple Choice

If a firm is unlevered and has a cost of equity capital 12%,what would its cost of equity be if its debt-equity ratio became 2? The expected cost of debt is 8%.

• A)14.0%
• B)14.67%
• C)16.0%
• D)20.0%
• E)None of the above.

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Definitions:

Conversion

The act or process of changing or causing something to change from one form to another, in various contexts such as religion, energy, or digital data.

Nervous System

The network of nerve cells and fibers that transmits nerve impulses between parts of the body.

Sensation

The process by which our sensory receptors and nervous system receive stimuli from our environment, an initial step in perception.

Cornea

The transparent front part of the eye that covers the iris, pupil, and anterior chamber, contributing to the eye's ability to focus.