A Firm Has a Target Debt-To-Equity Ratio of 3

question 25

Multiple Choice

A firm has a target debt-to-equity ratio of 3.Its cost of equity equals 12 percent,its cost of debt is 9 percent,and the tax rate is 34 percent.What is the WACC?

• A)7.46 percent.
• B)8.97 percent.
• C)10.00 percent.
• D)10.49 percent.

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Definitions:

Bond Equivalent Yield

Bond yield calculated on an annual percentage rate method. Differs from effective annual yield.

Quoted Bid Price

The highest price a buyer is willing to pay for a security or commodity at a given moment.

Treasury Note

A Treasury note is a marketable U.S. government debt security with a fixed interest rate and maturity between one and ten years.

Bid Price

The highest price that a buyer is willing to pay for a security or commodity.