Fama's Llamas Has a Weighted Average Cost of Capital of 9.5

question 62

Multiple Choice

Fama's Llamas has a weighted average cost of capital of 9.5 percent.The company's cost of equity is 15.5 percent,and its pretax cost of debt is 8.5 percent.The tax rate is 34 percent.What is the company's target debt-equity ratio?

• A)0.89
• B)0.92
• C)0.98
• D)1.01
• E)1.54

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Definitions:

Congressional Republicans

Members of the United States Congress who are affiliated with the Republican Party, one of the two major political parties in the U.S.

Corporate Spokesman

An individual appointed by a company to communicate its views, policies, and news to the public and media.

Ronald Reagan

The 40th President of the United States (1981-1989), known for his conservative policies, economic reforms, and a strong stance against the Soviet Union during the Cold War.