Ralph Contracts to Sell His Double-R Ranch to Samantha on May

question 22

Multiple Choice

Ralph contracts to sell his Double-R Ranch to Samantha on May 1.On April 20,Ralph tells Samantha that he will not go through with the deal.Samantha can recover

• A)the cost of any property that Samantha would find suitable.
• B)the cost of a similar,nearby ranch.
• C)the Double-R Ranch.
• D)nothing.

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Definitions:

Cost of Equity

The return rate that shareholders require to invest in a company's equity, taking into account the risk associated with the investment.

Cost of Debt

The effective rate that a company pays on its current debt, incorporating both interest payments and any other required repayments.

Cost of Equity

The return that investors require for their investment in shares, representing the compensation for taking on the risk of investing in equity.

M&M Proposition I

M&M Proposition I, under the Modigliani-Miller theorem, states that in an ideal market, the value of a firm is not affected by how it is financed, whether through debt or equity.