Suppose That Taggart Transcontinental Currently Has No Debt and Has

question 46

Multiple Choice

Suppose that Taggart Transcontinental currently has no debt and has an equity cost of capital of 10%.Taggart 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-value ratio of 20%,then Taggart's levered cost of equity would be closest to:

• A)8.0%.
• B)9.2%.
• C)10.0%.
• D)11.0%.

---

Definitions:

Total Output

The total quantity of goods or services produced by a firm or economy in a given period.

Economy

A system of production, distribution, and consumption of goods and services among individuals and businesses in a certain area or country.

Increasing Rate

A situation or condition where there is a rise in the percentage or level of a particular economic variable or indicator over a designated period.

Slope

The measure of the steepness or incline of a line, indicating the rate of change between two points on a graph.