Calculate a Firm's WACC Given That the Total Value of the Firm

question 31

Multiple Choice

Calculate a firm's WACC given that the total value of the firm is $2,000,000, $600,000 of which is debt, the cost of debt and equity is 10% and 15% respectively, and the firm pays no taxes:

• A)9.0%
• B)11.5%
• C)13.5%
• D)14.4% WACC = .10(600,000/2,000,0000) + .15(1,400,000/2,000,000)
• = )10(.3) + .15(.7)

---

Definitions:

Market Power

The ability of a company or entity to control prices or exclude competition in a particular market.

Bid Rigging

An illegal agreement between parties to conspire to fix the outcomes of bidding processes to benefit all involved parties unfairly.

Predatory Pricing

The practice of selling a product or service at a very low price with the intent of driving competitors out of the market or creating barriers to entry for potential new competitors.

Meeting-The-Competition Defense

A legal defense allowing a business to justify certain behaviors, such as price fixing, by proving they were necessary to meet a competitor's prices.