A Firm Has an Equity Multiplier of 1

question 63

Multiple Choice

A firm has an equity multiplier of 1.57,an unlevered cost of equity of 14 percent,a levered cost of equity of 15.6 percent,and a tax rate of 21 percent.What is the cost of debt?

• A)11.25 percent
• B)10.50 percent
• C)10.45 percent
• D)11.00 percent
• E)10.33 percent

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Definitions:

Total Expenditures

The sum of all spending incurred by individuals, firms, or the government within a specific period.

Isocost Line

A line representing all combinations of inputs that result in the same total cost for a firm.

Price Of Capital

The cost of using capital goods for production, often represented by interest rates or rental prices of equipment and machinery.

Slope

A measure of the steepness or incline of a line, indicating the rate of change between two variables on a graph.