Use the Information for the Question(s)below

question 19

Multiple Choice

Use the information for the question(s) below.
Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy,with each outcome being equally likely.The initial investment required for the project is $80,000,and the project's cost of capital is 15%.The risk-free interest rate is 5%.
-Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk-free rate and issues new equity to cover the remainder.In this situation,the cost of capital for the firm's levered equity is closest to:

• A)23%.
• B)25%.
• C)15%.
• D)18%.

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Definitions:

Job Characteristics Model

A theory that proposes that any job can be described in terms of five core job dimensions: skill variety, task identity, task significance, autonomy, and feedback, which impact three critical psychological states, leading to enhanced work outcomes.

Task Significance

The degree to which a job has a significant impact on the lives or work of other people either in the immediate organization or in the external environment.

Job Simplification

The process of breaking down jobs into their simplest components to increase productivity by reducing complexity or skill requirements.

Psychological Empowerment

A state where individuals feel a sense of control over their work and perceive their job as meaningful, contributing to a sense of competence and self-determination.