A Firm Has a Debt-To-Equity Ratio of

question 40

Multiple Choice

A firm has a debt-to-equity ratio of .5.Its cost of equity is 22%, and its cost of debt is 16%.If the corporate tax rate is .40, what would its cost of equity be if the debt-to-equity ratio were 0?

• A)14.00%
• B)20.61%
• C)21.07%
• D)22.00%
• E)None of the above.

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Definitions:

Cartilage

Connective tissue in which the cells lie within lacunae embedded in a flexible, proteinaceous matrix.

Inorganic Salts

Ionic compounds composed of cations (excluding H+) and anions (excluding hydroxide and oxide ions), often found as crystalline solids.

Red Bone Marrow

Vascularized, modified connective tissue that is sometimes found in the cavities of spongy bone; site of blood cell formation.

Medullary Cavity

The central cavity of bone shafts where yellow marrow (fat cells) is stored.