Use next year's Cash Flow Forecast for Blank Company to answer the following questions:
$\begin{array} { | l | l | }
\hline \text { Demand } & \text { Cash Flow } \
\hline \text { Weak } & \$ 25,000 \
\hline \text { Expected } & \$ 35,000 \
\hline \text { Strong } & \$ 45,000 \
\hline
\end{array}$
-Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. If the company uses no leverage, what is the expected return to equity holders?

Question

Use next year's Cash Flow Forecast for Blank Company to answer the following questions:
$\begin{array} { | l | l | } 
\hline \text { Demand } & \text { Cash Flow } \
\hline \text { Weak } & \$ 25,000 \
\hline \text { Expected } & \$ 35,000 \
\hline \text { Strong } & \$ 45,000 \
\hline
\end{array}$
-Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. If the company uses no leverage, what is the expected return to equity holders?

Quizplus · Accepted Answer

The expected return to equity holders is equal to the unlevered cost of equity when there is no leverage, which is 8%.

Use Next Year's Cash Flow Forecast for Blank Company to Answer