The Pizza Shoppe Has Debt with Both a Face and a Market

question 13

Multiple Choice

The Pizza Shoppe has debt with both a face and a market value of $3,000.This debt has a coupon rate of 7 percent and pays interest annually.The expected earnings before interest and taxes are $1,200,the tax rate is 34 percent,and the unlevered cost of capital is 12 percent.What is the firm's cost of equity?

• A)13.25%
• B)13.89%
• C)13.92%
• D)14.14%
• E)14.25%

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Definitions:

Arthropods

Invertebrate animals having an exoskeleton, a segmented body, and paired jointed appendages, including insects, arachnids, and crustaceans.

Exclusively Marine

Referring to organisms or features that are found only in the oceanic environment, not in fresh water or on land.

Chilopods

A class of arthropods known as centipedes, characterized by elongated bodies with a pair of legs per segmented body part.

Arachnids

A class of joint-legged invertebrate animals in the subphylum Chelicerata, including spiders, scorpions, ticks, and mites.