Given Are the Following Data: Cost of Debt = R_D

question 61

Multiple Choice

Given are the following data: Cost of debt = r_D = 6.0%; Cost of equity = r_E = 12.1%; Marginal tax rate = 21%; and the firm has 50 percent debt and 50 percent equity. Calculate the after-tax weighted average cost of capital (WACC) .

• A)8.42 percent
• B)7.1 percent
• C)9.0 percent
• D)5.9 percent

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Definitions:

Short Run Exchange Rate Risk

The potential for financial loss resulting from fluctuations in the exchange rate between currencies in the near term.

Financial Statements

Documents that provide an overview of a company's financial condition, including the balance sheet, income statement, and cash flow statement.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Long-Run Exposure

Financial risk faced by a company due to fluctuating exchange rates affecting the value of its foreign currency denominated transactions over time.