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:

Artificial Opening

A surgically created opening in the body for the discharge of bodily wastes or other purposes.

Small Incision

A minimal cut or surgical opening in the skin or body tissue, often used in less invasive procedures to reduce healing time and risk of infection.

Internal Ulcer

A sore or lesion forming on the interior lining of an organ, often in the stomach or intestines, causing pain and discomfort.

Gastric Ulcer

A sore or lesion that develops on the lining of the stomach, caused by various factors, including infection with Helicobacter pylori.