Use the Information for the Question(s) Below

question 38

Multiple Choice

Use the information for the question(s) below.
Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest rate is 5%.
-Suppose that you borrow only $60,000 in financing the project.According to MM proposition II,the firm's equity cost of capital will be closest to:

• A) 45%
• B) 30%
• C) 25%
• D) 35%

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Convictions or acceptances that something exists or is true, especially without proof.

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Fundamental beliefs or principles that guide behaviors, decision-making, and lifestyle choices among individuals or groups.

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Behaviors exhibited by a group that are common and consistent among its members, often fostered through culture or norms.

Norms

Societal, group, or organizational standards of behavior that are considered acceptable and typical.