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%

---

Definitions:

Ethics Competency

The ability to understand and apply ethical principles and standards in decision-making and actions.

Counseling Program

A structured series of professional services offering guidance, support, and problem-solving strategies to individuals in need.

Intermittent Reinforcement

A conditioning schedule where only some responses are reinforced, making the behavior more resistant to extinction.

Desired Behavior

The specific actions or reactions that an individual, group, or organization aims to elicit from others.