Holland Auto Parts Is Considering a Merger with Workman Car

question 13

Multiple Choice

Holland Auto Parts is considering a merger with Workman Car Parts.Workman's market-determined beta is 0.9,and the firm currently is financed with 20% debt,at an interest rate of 8%,and its tax rate is 25%.If Holland acquires Workman,it will increase the debt to 60%,at an interest rate of 9%,and the tax rate will increase to 35%.The risk-free rate is 6% and the market risk premium is 4%.What will Workman's required rate of return on equity be after it is acquired?

• A) 7.4%
• B) 8.9%
• C) 9.3%
• D) 9.6%
• E) 9.7%

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Definitions:

Sarcomere

The basic unit of striated muscle tissue responsible for muscle contraction, delimited by Z discs.

Spastic Contractions

Involuntary muscle contractions that are sudden and sustained, often resulting from spinal cord injury or neurological disorders.

Synaptic Cleft

A narrow space between the end of a neuron and an adjacent cell, where neurotransmitters are released to transmit signals.

Organophosphate Poison

Toxic chemicals found in certain pesticides and nerve agents that inhibit the function of acetylcholinesterase, leading to overstimulation of nerves.