The Required Rate of Return on Montreal Computing Power's Equity

question 49

Multiple Choice

The required rate of return on Montreal Computing Power's equity is 15 percent and the yield on their debt is 7 percent.There are no taxes and all cash flows are perpetuities.If the value of the debt is $1,000 and value of the equity is $1,000,what level of earnings must Montreal Computing Power earn in order to support the current valuation?

• A) $290
• B) $300
• C) $330
• D) $220

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Definitions:

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