Use the Information for the Question(s) Below

question 102

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.Your firm pays 40% of earnings in taxes and you decide to issue $25 million in new debt and $25 million in new equity.You ownership stake in the firm following these new issues of debt and equity is closest to:

• A) 58%
• B) 55%
• C) 33%
• D) 50%

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Definitions:

Cell Phone Conversations

Verbal communication between individuals through the use of mobile phones, often raising concerns about safety and etiquette in various contexts.

Attention

The mental process of concentrating on specific stimuli while ignoring others, enabling processing of relevant information.

Easy Distraction

The tendency to lose focus or attention with minimal external stimuli.

Impulsiveness

A tendency to act on a whim, displaying behavior characterized by little or no forethought, reflection, or consideration of the consequences.