A Firm Has a Debt-To-Equity Ratio of 1

question 45

Multiple Choice

A firm has a debt-to-equity ratio of 1.20. If it had no debt, its cost of equity would be 15%. Its cost of debt is 10%. What is its cost of equity if there are no taxes or other imperfections?

• A) 21%.
• B) 18%.
• C) 15%.
• D) 10%.

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Definitions:

Alcoholic

A person with an addiction to alcohol characterized by compulsive and uncontrolled consumption of alcoholic beverages despite negative effects on their health, social life, and personal relationships.

Harm Reduction

Harm reduction is a set of practical strategies and ideas aimed at minimizing negative health, social, and legal impacts associated with various human behaviors, both legal and illegal.

Predisposed

Having a tendency or inclination towards a particular condition, behavior, or attitude, often due to genetic or environmental factors.

Alcoholism

A long-lasting illness defined by an inability to control alcohol intake and a constant obsession with alcohol.