Berkley's Has Expected Earnings Before Interest and Taxes of $3,800

question 61

Multiple Choice

Berkley's has expected earnings before interest and taxes of $3,800. Its unlevered cost of capital is 14.5% and its tax rate is 35%. Berkley's has debt with both a book and a face value of $2,200. This debt has a 7.5% coupon and pays interest annually. What is the firm's weighted average cost of capital?

• A) 12.48%
• B) 12.99%
• C) 13.87%
• D) 14.14%
• E) 14.37%

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Definitions:

Adolescence

A period marked by physical and mental development, usually extending from puberty to the age when one is considered a legal adult.

Irregular Schedules

Unpredictable or non-consistent time patterns in work, sleep, or activities.

Temperament

The natural element of a person's character that encompasses their usual mood, patterns of behavior, and emotional reactions.

Irritable

A frequent mood characterized by easy annoyance and often resulting in impatient or snappy responses.