Gator Fabrics Inc ?
A) 2

question 31

Multiple Choice

Gator Fabrics Inc.currently has zero debt .It is a zero growth company,and additional firm data are shown below.Now the company is considering using some debt,moving to the new capital structure indicated below.The money raised would be used to repurchase stock at the current price.It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat,as indicated below.If this plan were carried out,by how much would the WACC change,i.e. ,what is WACC_Old - WACC_New? Do not round your intermediate calculations. $\begin{array}{lllr}w_{d} & 40 \% & \text { Orig cost of equity, } r_{s} & 10.0 \% \\w_{c} & 60 \% & \text { New cost of equity }=r_{s} & 11.0 \% \\\text { Interest rate new }=r_{d} & 6.0 \% & \text { Tax rate } & 40 \%\end{array}$
?

• A) 2.29%
• B) 1.96%
• C) 2.04%
• D) 1.65%
• E) 2.16%

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Definitions:

Current Account

A component of a country's balance of payments, reflecting the difference between its export and import of goods and services.

Account Surplus

A situation where the income or revenue in an account exceeds the expenditures or costs.

International Trade

The exchange of goods, services, and capital across international borders, driven by the concept of comparative advantage and differing resource endowments.

International Border

The officially recognized boundary separating two sovereign countries, regulating the flow of people, goods, and services across territories.