A Firm Has a Debt-Equity Ratio of

question 54

Multiple Choice

A firm has a debt-equity ratio of .48.Its cost of debt is 7 percent and its WACC is 10.8 percent.What is its cost of equity if there are no taxes or other imperfections?

• A)10.97 percent
• B)13.05 percent
• C)12.62 percent
• D)11.46 percent
• E)13.67 percent

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Definitions:

Trade-offs

Decisions that involve sacrificing one goal or benefit in order to gain another, often used in the context of economic and financial planning.

Free Lunch

An expression that suggests there is no such thing as a benefit without a corresponding cost, even if the cost is not immediately apparent.

Maximum Benefit

The highest level of advantage or gain that can be achieved from an action or decision, considering all relevant constraints and alternatives.

Satisfaction

The feeling of pleasure or fulfillment that comes from meeting or exceeding expectations.