Use the Information for the Question(s) Below

question 33

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 except for the existence of corporate taxes and that your firm pays 40% of earnings in taxes.If you want to maintain ownership of at least 50% of your firm,then the minimum amount of debt that you must issue to fund the expansion is closest to:

• A) $19 million
• B) $18 million
• C) $16 million
• D) $20 million

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Definitions:

Realistic Component

An element or aspect that adds a sense of realism or authenticity to a scenario, project, or simulation.

Effective Objectives

Clearly defined goals that are measurable, achievable, relevant, and time-bound, directing strategic actions.

Time-Specific Component

An element or feature of a plan or project that is contingent upon or defined by a particular time frame.

Managerial View

A perspective focused on strategies and tasks for managing, leading, and organizing a team or business operations effectively.