Johnson Tire Distributors Has Debt with Both a Face and a Market

question 17

Multiple Choice

Johnson Tire Distributors has debt with both a face and a market value of $12,000.This debt has a coupon rate of 6 percent and pays interest annually.The expected earnings before interest and taxes are $2,100,the tax rate is 30 percent,and the unlevered cost of capital is 11.7 percent.What is the firm's cost of equity?

• A)22.46 percent
• B)22.87 percent
• C)23.20 percent
• D)23.59 percent
• E)25.14 percent

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Definitions:

Rods

Photoreceptor cells in the retina of the eye, highly sensitive to light, which enable vision in low light conditions.

Malleus

A small bone in the middle ear that transmits sound vibrations from the eardrum to the incus, also known as the "hammer."

Tympanic Membrane

Eardrum; cellular membrane that separates the external from the middle ear; vibrates in response to sound waves.

Oval Window

Membranous structure to which the stapes attaches; transmits vibrations to the inner ear.