James Bay Water Park Company Operates in a World with Zero

question 42

Multiple Choice

James Bay Water Park Company operates in a world with zero taxes and no financial distress.The firm has a debt/equity ratio of 1.The cost of equity is 15 percent and the cost of debt is 8 percent.The only difference between Lanudiere Resort Company and James Bay Water Park is that Lanudiere Resort has a debt/equity ratio of 2.What is the cost of equity for Lanudiere Resort?

• A) 11.5%
• B) 13.25%
• C) 15.0%
• D) 18.5%

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Definitions:

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Group Solidarity

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