The Weighted-Average Cost of Capital for a Firm with a 40/60

question 13

Multiple Choice

The weighted-average cost of capital for a firm with a 40/60 debt/equity split, 8% cost of debt, 15% cost of equity, and a 34% tax rate would be:

• A) 12.20%.
• B) 8.63%.
• C) 11.11%.
• D)13.80%.

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Definitions:

Yield To Call

The yield to call is the return an investor would receive if they held a bond until its call date, when the issuer has the option to repay the bond before its maturity date at a specified price.

Nominal Yield

The yearly interest income from a bond or fixed-income security, expressed as a percentage of the bond's face value.

Semiannually

Occurring twice a year, typically every six months.

Call Price

The price at which a bond or other security can be repurchased by the issuer before its maturity date, usually at a premium to the face value.