LipTea Incorporated Purchases Raw Materials and Has Processing Plants Around

question 9

Multiple Choice

LipTea Incorporated purchases raw materials and has processing plants around the world. The firm has an average pre-tax cost of debt of 8%, an average tax rate of 40%, and an international equity beta of 1.2. The risk-free rate of return is anticipated to be 4% and the return to the international market portfolio to be 12%. If the firm finances 40% with debt and 60% with equity, what is the after-tax WACC?

• A) 10.08%
• B) 12.96%
• C) 11.36%
• D) 10.50%

---

Definitions:

Percentage

A proportion or share expressed as a fraction of 100.

Normal Model

Refers to a probability distribution that is symmetrically distributed around the mean, commonly known as the normal (or Gaussian) distribution.

Percentile

A value below which a given percentage of observations in a group of observations fall.

Percentile

A statistical measure indicating the value below which a given percentage of observations in a group of observations fall.