Pain-Free Inc. is a business dealing in pain reduction medication. It has a required return on its assets of 18%
It can borrow in the debt market at 10%. If there are no taxes and M&M's proposition II holds, what is the cost of equity if there is 50% equity financing and 50% debt financing?
A) 18%
B) 26%
C) 28%
D) None of these
Answer: B
Explanation: B) Cost of Equity: Re = Ra + (Ra - Rd) × = 18% + (18% - 10%) × = 26%.
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Pratt Company has old inventory on hand that cost $15,000. Its scrap value is $20,000. The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. What should Pratt do?
a) Sell the inventory for $20,000 scrap value b) Manufacture further and sell it for $50,000 c) Hold the inventory at its $15,000 cost d) Dispose of the inventory to avoid any further decline in value
The public relations department issues a statement saying, "Unusual and unforeseen weather caused this accident. It was beyond our control." This statement is a form of:
A) expression of innocence B) excuse C) rationalization D) justification