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%

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Definitions:

Fed's Legal Reserve Requirements

The minimum reserves each bank must hold to customer deposits and notes, as mandated by the Federal Reserve.

Reserve Requirement

The amount of funds that a bank must hold in reserve against deposits made by its customers, a regulatory measure to ensure banks can meet withdrawal demands.

Deposit Multiplier

The ratio that measures the potential impact of a change in banking reserves on the money supply, indicating how much money banks can create with each dollar of reserves.

Fed Funds Rate

The interest rate at which depository institutions lend reserve balances to other depository institutions overnight, a vital monetary policy tool used by the Federal Reserve.