The Market Value of Firm L's Debt Is $200,000 and Its

question 21

Multiple Choice

The market value of Firm L's debt is $200,000 and its yield is 9%.The firm's equity has a market value of $300,000,its earnings are growing at a rate of 5%,and its tax rate is 40%.A similar firm with no debt has a cost of equity of 12%.Under the MM extension with growth,what is Firm L's cost of equity?

• A) 11.4%
• B) 12.0%
• C) 12.6%
• D) 13.3%
• E) 14.0%

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Definitions:

Group Size

The number of individuals forming a social or working group, affecting its dynamics, interactions, and outcomes.

Conformity

The act of aligning one's beliefs, attitudes, and behaviors with those of a group or society's norms and expectations.

Solomon Asch

A psychologist best known for his research on conformity, demonstrating how social pressure can influence individuals to conform to incorrect answers.

Stanley Milgram

A psychologist known for his work on obedience to authority, demonstrating that people are willing to obey authority figures even when it involves harming others.