The Color Box Uses a Combination of Common Stock,preferred Stock,and

question 56

Multiple Choice

The Color Box uses a combination of common stock,preferred stock,and debt financing.The company wants preferred stock to represent 8 percent of the total financing.It also wants to structure the firm in a manner that will produce a weighted average cost of capital of 10.25 percent.The aftertax cost of debt is 5.1 percent,the cost of preferred is 9.3 percent,and the cost of common stock is 15.6 percent.What percentage of the firm's capital funding should be debt financing?

• A)46.12 percent
• B)52.03 percent
• C)54.15 percent
• D)58.78 percent
• E)63.21 percent

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Definitions:

Constraint

A limitation or restriction that affects the performance or capacity of a process, system, or organization.

Profitability

The ability of a company or product to generate income over cost, leading to profit.

Mixing Machines

Equipment used in manufacturing and baking industries to blend or mix ingredients into a homogeneous substance.

Variable Cost

Costs that vary directly with the level of production output, such as materials and labor, in contrast with fixed costs, which remain constant regardless of output.