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:

Respondent Behavior

Behavior that is elicited by a specific stimulus and is involuntary, such as salivating when smelling food.

Accelerated Heart Rate

An increased heart rate beyond the normal resting rate, which can be induced by stress, exercise, or other conditions.

Snake

A legless, carnivorous reptile with a long, slender body covered in scales, belonging to the suborder Serpentes.

Observational Learning

A learning process that occurs through observing the behavior of others and the outcomes of that behavior.