How Much Is Added to a Firm's Weighted-Average Cost of Capital

question 2

Multiple Choice

How much is added to a firm's weighted-average cost of capital for 45% debt financing with a required rate of return of 10% and a tax rate of 35%?

• A) 1.29%
• B) 2.93%
• C) 3.50%
• D)4.50%

---

Definitions:

Eskimos' Vocabulary

A reference to the popular but debunked claim that Eskimo languages have an unusually large number of words for snow, illustrating linguistic relativity.

Linguistic Relativism

Theory suggesting that the language one speaks influences one's perception of reality and cognitive processes.

Bilingual

Characterizing someone who can fluently speak two languages.

Outcome Simulation

The mental process of imagining the outcome of a specific action or scenario, often used in decision-making or goal setting.