Presley Cleaners Has an All-Equity Capital Structure with an Equity

question 17

Multiple Choice

Presley Cleaners has an all-equity capital structure with an equity value of $94,260.The expected earnings are $11,320 based on estimated sales of $60,000.The firm pays no taxes and can borrow at 6.4 percent.What is the value of R_WACC?

• A)12.01%
• B)12.29%
• C)11.83%
• D)12.34%
• E)12.16%

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Definitions:

Tax-Free

Earnings or financial transactions that are exempt from taxation by the government.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Average Tax Rate

The portion of an individual's or entity's taxable income that is paid in taxes, calculated by dividing the total tax amount by the taxable income.

Payroll Tax

A tax imposed on employers and employees, calculated as a percentage of the salaries that employers pay their staff.