A Firm Has a Capital Structure with $100 Million in Equity

question 18

Multiple Choice

A firm has a capital structure with $100 million in equity and $100 million of debt. The cost of equity capital is 14% and the pretax cost of debt is 8%. If the marginal tax rate of the firm is 30%, compute the weighted average cost of capital of the firm.

• A) 10.3%
• B) 9.8%
• C) 11.1%
• D) 11.7%

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Definitions:

Retrograde Amnesia

A memory deficit, often suffered after a head injury, in which the patient loses memory for events that occurred before the injury.

Anterograde Amnesia

A condition where an individual is unable to form new memories following the onset of an amnesia-causing event, though long-term memories from before the event may remain intact.

Working Memory

A system for temporarily holding and manipulating information necessary for cognitive tasks such as learning, reasoning, and comprehension.

Mnemonics

Memory aids, often involving patterns or associations, such as phrases or rhymes, that facilitate the recall of information.