Assume That a Firm Would Like to Expand Its Product

question 72

Multiple Choice

Assume that a firm would like to expand its product line.A complete expansion would cost $100 million,but the firm can only raise $75 million in financing.This is best classified as a(n) :

• A)constraint.
• B)opportunity.
• C)threat.
• D)instance of leverage.

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Definitions:

Unlevered Cost of Capital

The cost of capital for a company with no debt, reflecting the risk of the company’s assets without the impact of leverage.

Coupon

A document or digital code entitling the holder to a discount, or that portion of a bond which represents interest payments.

Tax Rate

The tax rate is the percentage at which an individual or corporation is taxed.

EBIT

Stands for Earnings Before Interest and Taxes, a financial indicator that calculates a firm's profit excluding interest and income tax expenses.