A Firm Uses Only Debt and Equity in Its Capital

question 16

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of equity is 35 percent. The firm's cost of equity is 14 percent and it has a tax rate of 21 percent. If the firm's WACC is 11 percent, what is the firm's before-tax cost of debt?

• A) 11.88 percent
• B) 9.38 percent
• C) 5.50 percent
• D) −3.00 percent

---

Definitions:

Auxiliary Power Unit

A device on a vehicle that provides energy for functions other than propulsion, such as electrical power for devices when the main engine is off.

Diesel Powered

Describes vehicles, machinery, or generators that operate using diesel fuel, which is known for its efficiency and torque output.

Cab/Bunk Heating

A system used to maintain a comfortable temperature inside the cabin and sleeping area of a truck or semi-trailer.

Security Market Line

A line that represents the relationship between the risk of an investment and its expected return, used in the Capital Asset Pricing Model.