Suppose That TNT, Inc

question 104

Multiple Choice

Suppose that TNT, Inc. has a capital structure of 43 percent equity, 23 percent preferred stock, and 34 percent debt. If the after-tax component costs of equity, preferred stock and debt are 15.4 percent, 10 percent and 7 percent, respectively, what is TNT's WACC if the firm faces an average tax rate of 21 percent?

• A) 9.45 percent
• B) 11.30 percent
• C) 10.64 percent
• D) 8.93 percent

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Definitions:

Excess Capacity

The situation where a company's production capabilities exceed the current demand for its products or services, leading to underutilized resources.

Utilization Facility

A facility used primarily for the processing, conversion, or treatment of resources or materials, often in the energy sector.

Demand Fluctuations

Variations in customer demand for products or services over a certain period of time.

Net Receivables

The total money owed to a company by its customers minus any provisions for bad debt.