Calculate the WACC for a Firm with a Debt-Equity Ratio

question 20

Multiple Choice

Calculate the WACC for a firm with a debt-equity ratio of .6.The debt pays 12% interest and the equity is expected to return 14%.Assume a 40% tax rate and risk-free debt.

• A)11.45%
• B)12.50%
• C)13.55%
• D)14.60%

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Definitions:

Non-Controlling Interest

The portion of equity interest in a subsidiary not attributable to the parent company, which reflects the equity stake that other investors or shareholders have in the subsidiary.

Statement of Comprehensive Income

A financial statement that shows all the items of income and expense recognized in a period including items beyond those in profit or loss.

Profit

The financial gain realized when the revenues generated from business activities exceed the expenses and costs associated with operating the business.

Unrealised Profit

Profits that have been earned but not yet realized through a transaction, such as an increase in the value of an investment that has not been sold.