A Firm Uses Only Debt and Equity in Its Capital

question 108

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of equity is 75%. The firm's cost of equity is 16% and it has a tax rate of 30%. If the firm's WACC is 13%, what is the firm's before-tax cost of debt?

• A) 6.89%
• B) 6.28%
• C) 5.97%
• D) 5.71%

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Definitions:

Entrepreneur

An individual who creates, organizes, and operates a business or businesses, taking on greater than normal financial risks.

$1 Million

Refers to the sum of one million dollars, a significant financial milestone for individuals and businesses.

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Planned methods of exiting one's current situation, often used in the context of business to refer to how an investor or entrepreneur plans to cash out of an investment.

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Initial Public Offerings, the process by which a private company becomes publicly traded by offering shares of its stock to the general public for the first time.