Suppose That Rearden Metal Currently Has No Debt and Has

question 17

Multiple Choice

Suppose that Rearden Metal currently has no debt and has an equity cost of capital of 12%.Rearden is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock.Assume perfect capital markets.If Taggart borrows until they achieved a debt -to-equity ratio of 50%,then Rearden's levered cost of equity would be closest to:

• A) 10.0%
• B) 12.0%
• C) 15.0%
• D) 16.0%

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Definitions:

Quintile Distribution

A method of dividing a population into five equal groups based on their income levels or other measures.

Nation's Income

The total amount of money earned within a country from the production of goods and services over a specific time period, including wages, profits, and rental income.

TANF

Temporary Assistance for Needy Families, a U.S. government program that provides financial aid to low-income families.

Welfare Rolls

Lists or records of individuals or families receiving government assistance benefits, typically for those living below the poverty line.