A Firm Has a Capital Structure with $30 Million in Equity

question 57

Multiple Choice

A firm has a capital structure with $30 million in equity and $90 million of debt. The cost of equity capital is 10% and the pretax cost of debt is 6%. If the marginal tax rate of the firm is 30%, compute the weighted average cost of capital of the firm.

• A) 5.2%
• B) 4.6%
• C) 4.9%
• D) 5.7%

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Definitions:

Checking

A banking service allowing customers to deposit, withdraw, and manage funds easily for everyday transactions.

External Document

This refers to documents created outside the organization, such as legal contracts, government regulations, or external reports, that might have an influence on the business operations or procedures.

Cash Payments

Transactions involving the outflow of cash to settle obligations or purchase goods and services.

Voucher System

A control mechanism in accounting where vouchers are created for all transactions that involve the payment of cash or transfer of funds.