Use the Information for the Question(s) Below

question 33

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 except for the existence of corporate taxes and that your firm pays 40% of earnings in taxes.If you want to maintain ownership of at least 50% of your firm,then the minimum amount of debt that you must issue to fund the expansion is closest to:

• A) $19 million
• B) $18 million
• C) $16 million
• D) $20 million

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Definitions:

Ingroup Bias

The tendency to favor one's own group over other groups.

Empathy Gap

The difficulty of understanding or predicting one's own and others' feelings, preferences, or behaviors when in a different emotional or physical state.

Communally Connected

A state of being interlinked with others in a community, fostering a sense of belonging and shared purpose.

Marginalized Groups

Populations or groups within a society that are excluded or discriminated against, leading to lower social status and limited access to resources.