Use the Following Information to Answer the Next Question(s)

question 72

Multiple Choice

Use the following information to answer the next question(s) .
Sunny Flowers is considering the purchase of a small business that costs $500,000. Sunny plans to sell stock valued at $250,000. The stock would pay dividends of $20,000 per year. Sunny would borrow the remaining $250,000 from a local bank at 12 percent interest.
The business is expected to generate annual cash inflows of $80,000. Duane plans to operate the business for 15 years and then turn it over to his son.
-The cost of capital for the firm is

• A) 8%.
• B) 6%.
• C) 10%.
• D) 12%.

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Definitions:

Formal Education

An organized educational framework that typically involves schooling at various levels, characterized by a systematic and structured curriculum.

Middle-income

A socioeconomic status referring to individuals or families that fall between the lower and upper classes, typically based on earnings and lifestyle.

Firstborn Child

The first child born to a set of parents, often studied in psychology for their unique position, which may affect personality and behavior.

Nuclear Families

A family group consisting of parents and their children, considered a basic social unit.