What Is the WACC for a Firm with 40% Debt

question 40

Multiple Choice

What is the WACC for a firm with 40% debt, 20% preferred stock, and 40% equity if the respective costs for these components are 9.23% before tax, 12% after tax, and 18% before tax? The firm's tax rate is 35%.

• A) 9.48%
• B) 11.16%
• C) 12.00%
• D)15.60%

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Definitions:

Total Revenue

The full amount of income generated by the sale of goods or services before any costs are deducted.

Price Per Unit

A measure that indicates the cost of a single unit of a product or service.

Network Effects

The phenomenon whereby a product or service gains additional value as more people use it, enhancing its appeal and utility to new and existing users.

Economies Of Scale

Cost advantages that a business obtains due to expansion, seen in the form of reduced costs per unit as output increases.