Determine the Weighted Cost of Capital for the Mills Company

question 93

Multiple Choice

Determine the weighted cost of capital for the Mills Company that will finance its optimal capital budget with $120 million of long-term debt (kd = 12.5%) and $180 million in retained earnings (k? = 16.0%) . Mills' present capital structure is considered optimal. The company's marginal tax rate is 40%. (Compute answer to nearest .1%) .

• A) 14.3%
• B) 12.6%
• C) 14.6%
• D) 11.9%

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Definitions:

Demand Curve

A curve that shows the relationship between the price of a good and the quantity demanded by consumers, typically downward sloping.

Cournot Duopolists

A model of competition between two firms that decide on quantity to produce independently and simultaneously with the assumption of no further entry into the market.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded, usually downward sloping.

Total Costs

The sum of all the costs incurred in the production of goods or services, including both fixed and variable costs.