Suppose That Taggart Transcontinental Currently Has No Debt and Has

question 46

Multiple Choice

Suppose that Taggart Transcontinental currently has no debt and has an equity cost of capital of 10%.Taggart is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock.Assume perfect capital markets.If Taggart borrows until they achieved a debt-to-value ratio of 20%,then Taggart's levered cost of equity would be closest to:

• A)8.0%.
• B)9.2%.
• C)10.0%.
• D)11.0%.

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Definitions:

Gold Star

Often used to denote excellence or high achievement, originally in educational settings to reward good work but also used metaphorically in various contexts.

Clean Room

An environment, typically used in manufacturing or scientific research, that has a low level of environmental pollutants such as dust, airborne microbes, aerosol particles, and chemical vapors.

Primary Punisher

A stimulus that is inherently punishing; an example is electric shock.

Secondary Punisher

A stimulus that becomes punishing because it is associated with a primary punisher.