Technico Plans to Start a New Product Division That Will

question 52

Multiple Choice

Technico plans to start a new product division that will have a capital structure of 70 percent debt and 30 percent equity.The levered beta for this division has been estimated to be 2.02.What will be Technico's weighted cost of capital for this new division if the after-tax cost of debt is 7 percent, the risk-free rate is 8 percent, and the market risk premium is 5 percent?

• A)14.77%
• B)10.33%
• C)18.1%
• D)1.03%

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Definitions:

Merchant

An individual or business that is involved in the wholesale or retail sale of goods.

Time Period

A specific interval of time marked by a start and end point, often used for purposes of study, assessment, or to denote durations.

Offeree

In contract law, the person to whom an offer is made.

Illusory Promise

A promise that does not obligate the promisor to anything.