A Firm Uses Only Debt and Equity in Its Capital

question 102

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of debt is 40 percent. The firm could issue new bonds at a yield to maturity of 9 percent and the firm has a tax rate of 30 percent. If the firm's WACC is 11 percent, what is the firm's cost of equity?

• A)15.92 percent
• B)14.13 percent
• C)15.03 percent
• D)15.68 percent

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Definitions:

Association

A statistical relationship between two variables, indicating how changes in one variable are related to changes in another.

Null Hypothesis

The hypothesis that there is no significant difference or effect, serving as the default assumption to be tested in statistical analysis.

Supplemental Health Coverage

Additional insurance that complements primary health plans by covering extra or uncovered health care costs.

Proportion

A part, share, or number considered in comparative relation to a whole; a statistical term referring to the ratio of one part to the whole.