Lauterbach Corporation Uses No Debt,has a Beta of 1

question 7

Multiple Choice

Lauterbach Corporation uses no debt,has a beta of 1.10,and its tax rate is 40%.However,the CFO is considering moving to a capital structure with 30% debt and 70% equity.The risk-free rate is 5.0% and the market risk premium is 6.0%.By how much would the firm's cost of equity change as a result of altering its capital structure?

• A)1.53%
• B)1.70%
• C)1.87%
• D)2.05%

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Definitions:

Esteem Needs

Esteem needs are a human's desire for respect, self-esteem, and recognition from others, as posited in Maslow's hierarchy of needs.

Promotion

The act of raising someone to a higher position or rank, often accompanied by increased responsibilities and benefits.

ERG Theory

Clayton Alderfer's motivation theory that divides human needs into three categories: Existence, Relatedness, and Growth.

Relatedness Needs

The human need to form and maintain strong, stable interpersonal relationships.