Use the Information for the Question(s)below

question 26

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 $30 million in new debt,and you issue $20 million in new equity.Your ownership stake in the firm following these new issues of debt and equity is closest to:

• A)58%.
• B)50%.
• C)33%.
• D)55%.

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Definitions:

Budgeted Manufacturing Overhead

The estimated total indirect costs related to the production process, planned for a specific period.

Cost Driver

A factor that causes or relates to a change in the cost of an activity or a product, such as machine-hours, labor-hours, or material usage.

Work in Process Inventory

Items or materials that are partway through the production process but not yet completed, representing a current asset on the balance sheet.

Finished Goods Inventory

Items that have completed the manufacturing process and are ready for sale to customers.