Transitions Inc

question 33

Multiple Choice

Transitions Inc.is an import-export company specializing in products from Asia and the West Coast.It can borrow in the debt market at 8%.Its cost of equity with 40% D/V ratio is 12%.Its corporate tax rate is 30%.If the M&M world of taxes holds true,what is the WACC for Transitions Inc.with a 40% D/V financing?

• A)7.20%
• B)8.00%
• C)8.64%
• D)9.44%

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Definitions:

Net Income

The company's residual earnings post all expenditures and tax deductions from the gross revenue.

External Transaction

A financial or non-financial exchange between the business and an external party, impacting the financial statements.

Accounting Equation

The foundational principle of double-entry bookkeeping that states assets equal liabilities plus equity.

Business Activity

Any action that is engaged in for the primary purpose of making a profit, including operations, marketing, and production.