Fuji Incis Registered as a Business in the Film-Making Industry and and Has

question 87

Multiple Choice

Fuji Inc.is registered as a business in the film-making industry and has a required return on its assets of 12%.It can borrow in the debt market at 6%.If there are no taxes and M&M's proposition II holds,what is the cost of equity if there is 100% equity financing?

• A)12%
• B)13%
• C)14%
• D)15%

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Definitions:

Expressed Agency

An agency relationship clearly stated in oral or written terms.

Agency

A relationship between two parties in which one party, the agent, is authorized to act on behalf of another party, the principal, in business transactions.

Agreement

One of the four elements necessary for a contract; consists of an offer made by one party, the offeror, and the acceptance of the offer by another party, the offeree.

Agent

Describes a person or entity authorized to act on behalf of another, known as the principal, in dealings with third parties.