The Border Crossing Has No Debt and a Cost of Capital

question 3

Multiple Choice

The Border Crossing has no debt and a cost of capital of 11.2 percent.Assume the firm switches to a debt-to-equity ratio of .25 and issues bonds at par with a 6.3 percent coupon.What will be its cost of equity after the switch? Ignore taxes.

• A)11.71%
• B)12.33%
• C)11.54%
• D)9.98%
• E)12.43%

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Definitions:

Tit-For-Tat

A strategy in game theory where an entity responds to an action with a similar action, often seen in reciprocal altruism or in competitive contexts.

Repeated Game

A strategic situation where the same game is played numerous times, allowing participants to adjust their strategies based on past outcomes.

Stackable Discounts

Discounts that can be combined or "stacked" on a single purchase to provide consumers with greater savings than would be available from any single discount alone.

Selling Price

The price at which a good or service is offered to the public.