Salmon Inc

question 42

Multiple Choice

Salmon Inc.has debt with both a face and a market value of $227,000.This debt has a coupon rate of 7 percent and pays interest annually.The expected earnings before interest and taxes is $87,200,the tax rate is 21 percent,and the unlevered cost of capital is 12 percent.What is the firm's cost of equity?

• A)13.25 percent
• B)13.89 percent
• C)13.92 percent
• D)14.27 percent
• E)14.14 percent

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Definitions:

Stockholders' Equity

The residual interest in the assets of an entity that remains after deducting its liabilities, representing owners' claims against the company's assets.

Dividends Policy

A company's strategy or guidelines governing the amount and timing of dividend payments to its shareholders.

Stock Dividends

A form of dividend payment made by a corporation to its shareholders in the form of additional shares, rather than cash, based on the portion of shares already held.

Unlimited Liability

A legal structure in which business owners are personally responsible for all the debts of the business.