Use the Information for the Question(s) Below

question 76

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 $25 million in new debt,and you issue $25 million in new equity.You ownership stake in the firm following these new issues of debt and equity is closest to:

• A) 50%
• B) 55%
• C) 58%
• D) 33%

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Definitions:

Alternatives

Other options or choices available in a given situation.

Scenario

A written outline of a plot and individual scenes, often used in the context of planning.

Finite Number

A number that is countable and limited in value, as opposed to infinite numbers which have no end.

Infinitely

Without limit or end; extending beyond measure or comprehension.