An Unlevered Firm Has a Cost of Capital of 12

question 50

Multiple Choice

An unlevered firm has a cost of capital of 12.46 percent and a tax rate of 35 percent.The firm is considering a new capital structure with 35 percent debt.The interest rate on the debt would be 6.68 percent.What would be the firm's levered cost of capital?

• A)14.48%
• B)14.78%
• C)13.90%
• D)14.27%
• E)13.94%

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Definitions:

Reinforcement

In behavioral psychology, an event that strengthens or increases the likelihood of a behavior by providing a consequence an individual finds rewarding.

Microsystem

In bioecological systems theory, the innermost level of context, which includes an individual’s immediate physical and social environment.

Mesosystem

In bioecological systems theory, the relations and interactions among microsystems.

Exosystem

In bioecological systems theory, social settings in which an individual does not participate but has an indirect influence on development.