Use the Information for the Question(s) Below

question 76

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.You 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:

Human Chorionic Gonadotropin

A hormone produced during pregnancy that supports the normal development of an egg in a woman's ovary, and stimulates the release of the egg during ovulation.

ACTH

Adrenocorticotropic hormone (ACTH) stimulates the adrenal glands to release cortisol.

ADH

Antidiuretic Hormone, also known as vasopressin, a hormone released by the posterior part of the pituitary gland that conserves water in the body and regulates its balance.

TSH

Thyroid Stimulating Hormone, a pituitary gland hormone that regulates the production of hormones by the thyroid gland.