A Firm Finances Itself with 30 Percent Debt, 60 Percent

question 77

Multiple Choice

A firm finances itself with 30 percent debt, 60 percent common equity, and 10 percent preferred stock. The before-tax cost of debt is 5 percent, the firm's cost of common equity is 15 percent, and that of preferred stock is 10 percent. The marginal tax rate is 30 percent. What is the firm's weighted average cost of capital?

• A)10.05 percent
• B)11.05 percent
• C)12.50 percent
• D)10.75 percent

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