If a Firm Is Unlevered and Has a Cost of Equity

question 21

Multiple Choice

If a firm is unlevered and has a cost of equity capital 12% what would the cost of equity be if the firms became levered at 2:1?The expected cost of debt would be 8%.

• A) 14.67%.
• B) 16.0%.
• C) 20.0%.
• D) 14.0%.

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Definitions:

Private Good

A product or service that is excludable and rivalrous, meaning its consumption by one individual prevents others from consuming it.

New Edition

Typically refers to a revised and updated release or version of a book, product, or service, indicating improvements or updates from previous versions.

Buy Back

A financial transaction in which a company purchases its own shares from the marketplace, reducing the amount of outstanding stock.

Resell

The act of selling a product or service that one has purchased to another buyer, often to achieve a profit or dispose of unwanted goods.