A Firm Has Debt of $8,000, a Leveraged Value of $18,800

question 97

Multiple Choice

A firm has debt of $8,000, a leveraged value of $18,800, a cost of debt of 8.75%, a cost of equity of 13%, and a tax rate of 35%. What is the firm's weighted average cost of capital?

• A) 9.89%
• B) 10.33%
• C) 10.69%
• D) 11.19%
• E) 12.48%

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Definitions:

Underlying Stock

The security on which a derivative instrument, such as an option or a warrant, is based.

Black-Scholes Option Pricing Model

A mathematical model used to determine the theoretical price of European put and call options, incorporating factors like volatility and time to expiration.

Strike Price

The fixed price at which the holder of an option can buy (call) or sell (put) the underlying security or commodity.

Call

In finance, an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying asset at a specified price within a specified time.