A Certain Firm Originally Had Capital Structure Weights of 50

question 64

Multiple Choice

A certain firm originally had capital structure weights of 50% debt and 50% common equity.Since establishing those weights,the firm's stock price has risen dramatically.The firm has done no additional borrowing.Assume that nothing else in the economy has changed (e.g.,interest rates,tax rates,and other macroeconomic factors remain constant) .Because the firm's stock price has increased a great deal,________.

• A)the firm's cost of equity has increased
• B)the firm's cost of debt has increased
• C)the firm's WACC has decreased
• D)the firm's cost of equity has decreased

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Definitions:

European Commission

An institution of the European Union responsible for proposing legislation, implementing decisions, upholding the EU treaties, and managing the day-to-day operations of the EU.

Trustbusters

Refers to government officials or policies that aim to break up or regulate monopolies and ensure competition in the marketplace.

FTC Act

Legislation established to prevent unfair competition, deceptive acts, and regulate antitrust.

Sherman Act

A landmark federal statute in the field of United States antitrust law passed by Congress in 1890 to preserve competitive market conditions by prohibiting monopolies, cartels, and trusts.