A Firm Has a Capital Structure with $50 Million in Equity

question 96

Multiple Choice

A firm has a capital structure with $50 million in equity and $100 million of debt. The cost of equity capital is 12% and the pretax cost of debt is 7%. If the marginal tax rate of the firm is 30%, compute the weighted average cost of capital of the firm.

• A) 7.3%
• B) 6.8%
• C) 6.3%
• D) 5.6%

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