Use the Information for the Question(s)below

question 49

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.You 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:

Employee-Owned Corporations

Businesses where the majority of the stock is owned by the employees, often leading to high levels of staff engagement and motivation.

Shares Of Stock

Units of ownership interest in a corporation or financial asset, representing a portion of a company's capital.

Top Management

The highest tier of executives and decision-makers in a company, including roles such as CEO, CFO, and other senior leaders responsible for strategic decisions.