Use the Information for the Question(s)below

question 33

Multiple Choice

Use the information for the question(s) below.
Rockwood Enterprises is currently an all-equity firm and has just announced plans to expand their current business.In order to fund this expansion,Rockwood will need to raise $100 million in new capital.After the expansion,Rockwood is expected to produce earnings before interest and taxes of $50 million per year in perpetuity.Rockwood has already announced the planned expansion,but has not yet determined how best to fund the expansion.Rockwood currently has 16 million shares outstanding and following the expansion announcement these shares are trading at $25 per share.Rockwood has the ability to borrow at a rate of 5% or to issue new equity at $25 per share.
-If Rockwood finances their expansion by issuing new stock,what will Rockwood's cost of equity capital be?

• A)12%
• B)15%
• C)8%
• D)10%

---

Definitions:

HR Policies

Guidelines and structured plans created by an organization to manage its human resources and provide fair treatment to employees.

Multinational Strategy

A strategic framework employed by corporations that operate in multiple countries, focusing on global operations, localization, and international competition.

Geographical Area

The specific physical locations or regions in which an organization operates or targets as part of its business activities.

Cross-cultural Competencies

Skills and knowledge that enable individuals to effectively interact, work, and communicate in environments with cultural diversity.