What Is Its Cost of Equity for a Firm If

question 7

Multiple Choice

What is its cost of equity for a firm if the corporate tax rate is 40%? The firm has a debt-to-equity ratio of 1.5. If it had no debt, its cost of equity would be 16%. Its current cost of debt is 12%.

• A) 22.0%.
• B) 18.4%.
• C) 17.44.
• D) 19.6%.

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Definitions:

Prisoner's Dilemma

A standard example of a game analyzed in game theory that shows why two rational individuals might not cooperate, even if it appears that it is in their best interest to do so.

Nash Equilibrium

A state in a game where no player can benefit by changing their strategy while the other players keep theirs unchanged.

Competitor's Intentions

The strategic plans and actions that a business's rivals aim to undertake to gain a competitive advantage.

Nash Equilibrium

A concept in game theory where all participants are assumed to know the equilibrium strategies of the others, and no player has anything to gain by changing only their own strategy.