Walter's Distributors Have a Cost of Equity of 13

question 146

Multiple Choice

Walter's Distributors have a cost of equity of 13.84% and an unlevered cost of capital of 12%. The company has $5,000 in debt that is selling at par value. The levered value of the firm is $12,000 and the tax rate is 34%. What is the pre-tax cost of debt?

• A) 7.92%
• B) 8.10%
• C) 8.16%
• D) 8.84%
• E) 9.00%

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Definitions:

Probability Distribution

A numerical function outlining all conceivable outcomes and their associated chances for a random variable within a certain range.

Random Variable

A variable determined by the numerical results of chance phenomena.

Variance

A statistical measurement that represents the degree of spread or dispersion of a set of data points.

Random Variable

A variable that takes numerical forms based on the randomness of certain events.