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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Definitions:

Broaden-And-Build Tendencies

A theory suggesting that positive emotions expand an individual's attention and mindset, leading to increased creativity, problem-solving abilities, and personal growth.

Specific-Action Tendencies

Innate or learned behavioral responses triggered by specific environmental or internal stimuli aimed at achieving certain objectives or satisfying needs.

Subjective States

Individual experiences or perceptions that are influenced by personal feelings, tastes, or opinions.

Positive Emotions

Pleasant responses to events that promote connections with others, including subjective states such as happiness, joy, euphoria, gratitude, and contentment.