Using the Original Modigliani and Miller Assumptions If a Firm's

question 42

Multiple Choice

Using the original Modigliani and Miller assumptions if a firm's cost of capital is 12% when it is all equity financed and its cost of debt is 8%, the cost of equity will be [blank] % when the firm is financed with equal amount of debt and equity.

• A)12%
• B)24%
• C)16%
• D)cannot be determined with the information given.

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Definitions:

Ending Inventory

The final amount of products available for sale at the conclusion of a fiscal period.

Investments

Assets purchased with the goal of generating income or appreciating in value over time.

Accounting Changes

Accounting Changes are modifications in the accounting methods, estimates, or reporting entity that affect the financial statements of a company.