A Firm Requires an Investment of $20,000 and Borrows $10,000

question 81

Multiple Choice

A firm requires an investment of $20,000 and borrows $10,000 at 8%. If the return on equity is 20% and the tax rate is 30%, what is the firm's WACC?

• A) 13.2%
• B) 11.4%
• C) 12.8%
• D) 12..1%

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Definitions:

Average Total Cost

The sum of all production costs (fixed and variable) divided by the quantity of output produced.

Average Variable Cost

The per unit cost of variable factors of production, calculated by dividing total variable costs by the quantity of output.

Economic Profit

The total revenue of a firm minus its explicit and implicit costs, representing the financial gain exceeding the opportunity cost.

Purely Competitive Market

A market structure characterized by many buyers and sellers, free entry and exit, and a homogenous product.