Refer to Exhibit 15

question 26

Multiple Choice

Refer to Exhibit 15.3.BB is considering moving to a capital structure that is comprised of 20% debt and 80% equity, based on market values.The debt would have an interest rate of 7%.The new funds would be used to repurchase stock.It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise to 14%.If this plan were carried out, what would BB's new value of operations be?

• A) $498, 339
• B) $512, 188
• C) $525, 237
• D) $540, 239
• E) $590, 718

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Definitions:

Paranasal Sinuses

Air-filled spaces in the bones of the skull that are connected to the nasal cavity.

Nasopharynx

The nasopharynx is the upper part of the pharynx, connecting the nasal cavity above to the mouth and larynx below.

Simple Squamous Epithelium

A single layer of flat cells lining surfaces involved in passive diffusion, such as the lining of blood vessels and air sacs of the lungs.

Alveoli

Tiny air sacs in the lungs where the exchange of oxygen and carbon dioxide takes place.