What Proportion of a Firm Is Equity Financed If the WACC

question 3

Multiple Choice

What proportion of a firm is equity financed if the WACC is 14%,the after-tax cost of debt is 7.0%,the tax rate is 35%,and the required return on equity is 18%?

• A) 54.00%
• B) 63.64%
• C) 70.26%
• D) 77.78%

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Definitions:

S Corporation

A special type of corporation in the United States that meets specific Internal Revenue Service criteria and elects to be taxed as a pass-through entity, avoiding double taxation on corporate income.

Shareholders

Individuals or entities that own shares in a corporation, giving them partial ownership and a stake in the company's profits and decision-making.

Limited Partnership

A business partnership where at least one partner has unlimited liability and one or more partners have limited liability, only responsible for the money they have invested.

Legal Entity

An organization or structure that is recognized by law as having rights and responsibilities, such as a corporation, partnership, or trust.