State Company Had Determined Its Earnings Before Interest and Taxes

question 61

Multiple Choice

State Company had determined its earnings before interest and taxes (EBIT) in four possible states of the world.In the Great State,EBIT will be $3,000,000 and in the Good,Normal and Poor States EBIT will be $2,000,000,$1,500,000,and $1,000,000 in that order.If each state has an equal probability of occurring,then what is State Company's expected EBIT?

• A) $3,000,000
• B) $2,500,000
• C) $1,875,000
• D) none of the above

Determine the weighted average cost of capital (WACC).

Calculate weighted average flotation cost.

Assign appropriate weights to common stock in WACC calculations.

Estimate the company's cost of equity.

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Definitions:

Seymour Martin Lipset

An American sociologist and political scientist known for his work on the sociology of democracy, social stratification, and the conditions that foster right-wing extremism.

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