Use the Information for the Question(s)below

question 3

Multiple Choice

Use the information for the question(s) below.
Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy,with each outcome being equally likely.The initial investment required for the project is $80,000,and the project's cost of capital is 15%.The risk-free interest rate is 5%.
-Suppose that you borrow $30,000 in financing the project.According to MM proposition II,the firm's equity cost of capital will be closest to:

• A)21%.
• B)15%.
• C)20%.
• D)25%.

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Definitions:

Residual

The difference between an observed value and the value predicted by a model.

Winning Percent

The ratio or fraction that represents the number of wins in relation to total games or matches played.

Goals Per Game

A statistical measure used in sports to indicate the average number of goals scored by a team or player per game.

Least-squares Regression Line

A straight line that minimizes the sum of the squared deviations of the data points from the line, used in linear regression analysis.