Suppose That PAW, Inc

question 22

Multiple Choice

Suppose that PAW, Inc. has a capital structure of 60 percent equity, 10 percent preferred stock, and 30 percent debt. If the before-tax component costs of equity, preferred stock and debt are 17.5 percent, 12 percent and 6.5 percent, respectively, what is PAW's WACC if the firm faces an average tax rate of 21 percent?

• A) 10.71 percent
• B) 4.00 percent
• C) 13.24 percent
• D) 13.10 percent

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Definitions:

Pros and Cons

The advantages and disadvantages of a particular decision, course of action, or situation, considered to help make a more informed decision.

Groupthink

A psychological phenomenon occurring within a group of people, in which the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.

Fake Electric Shocks

A method used in psychological experiments where participants are led to believe they will receive or have received electrical shocks, when in fact no such shocks are actually administered.

Dissenting Opinion

An opinion written by a judge or justice that disagrees with the decision reached by the majority of his or her colleagues.