Use the Information for the Question(s)below

question 58

Multiple Choice

Use the information for the question(s) below.
You own your own firm and you need to raise $50 million to fund an expansion.Following the expansion,your firm will be worth $75 million in its unlevered form.You want to go ahead with the expansion,but you are concerned that you may not be able to maintain ownership of over 50% of your firm's equity.In other words,you are concerned that if you use equity to finance the expansion,you may lose control of your firm.
-Assume that capital markets are perfect,you issue $25 million in new debt,and you issue $25 million in new equity.Your ownership stake in the firm following these new issues of debt and equity is closest to:

• A)50%.
• B)55%.
• C)58%.
• D)33%.

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Definitions:

Bell of Stethoscope

The cup-shaped end of a stethoscope used for listening to low-pitched sounds in the body.

Moro Reflex

An infantile reflex normally present at birth and disappearing around 4 to 6 months of age, characterized by a "startle" response to loud noises or sudden movements.

Auscultation of Thorax

The act of listening to the sounds made by the heart, lungs, and other organs in the chest with a stethoscope.