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:

Population Mean

The average value of all members of a complete population.

Outliers

Data points that are significantly different from the majority of other data points in a dataset, often indicating measurement error or a novel phenomenon.

Confidence Intervals

A selection of values from statistical samples that has a high chance of including the value of a hidden population attribute.

Population Mean

The average of all the values in a population, representing the central or typical value of the population.