A Firm Is Using $30 Million in Debt, $10 Million

question 63

Multiple Choice

A firm is using $30 million in debt, $10 million in preferred stock and $60 million in common equity to finance its assets. If the before tax cost of debt is 8%, cost of preferred stock is 10%, and the cost of common equity is 15%; calculate the weighted average cost of capital for the firm assuming a tax rate of 35%.

• A) 12.4%
• B) 11.56%
• C) 10.84%
• D) None of the above

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Definitions:

Establishing Probability

The process of determining the likelihood that a given proposition or hypothesis is true.

Method Of Equal Alternatives

A method of determining the probability of an event by finding the ratio of favorable outcomes to the total number of possible outcomes.

Equal Alternatives

Choices or options that have the same value or importance.

Subjective Assessment

A method of evaluation based on personal opinions, perspectives, or feelings rather than objective measurements or criteria.