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Why do you suppose companies offer their employees stock options instead of simply paying higher? salaries?
A. Stock options reward the employees only if the stock appreciates in value. Stock options allow employees to become fully vested shareholders. There can also be tax advantages to options.
B. Stock options reward the employees only if the stock appreciates in value. Stock options create incentives for employees to work hard in the best interests of the shareholders. There can also be tax advantages to options.
C. Stock options reward the employees whether or not the stock appreciates in value. Stock options create incentives for employees to work hard in the best interests of the shareholders. There can also be tax advantages to options.
D. While companies pay higher employment taxes on the stock options offered to? employees, the incentives created for employees to work hard outweight the higher taxes.
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Fama's Llamas has a weighted average cost of capital of 12.5 percent. The company's cost of equity is 15.5 percent, and its pretax cost of debt is 7.5 percent. The tax rate is 33 percent. What is the company's target debt-equity ratio?
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