A firm is equally likely to be worth $50 million, $80 million, $120 million, or $150 million. There is one bond outstanding that promises to pay $100 million at an interest rate of 6%. The appropriate cost of capital for the firm's projects is 12%.
-Refer to the information above. What proportions of debt and equity financing is the firm currently using?
A) 82.5% debt; 17.5% equity
B) 87.2% debt; 12.8% equity
C) 66.7% debt; 33.3% equity
D) none of the above
Correct Answer:
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