A Firm Uses Only Debt and Equity in Its Capital

question 24

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of debt is 45 percent. The firm could issue new bonds at a yield to maturity of 10 percent and the firm has a tax rate of 30 percent. If the firm's WACC is 12 percent, what is the firm's cost of equity?

• A)16.09 percent
• B)15.63 percent
• C)15.21 percent
• D)14.57 percent

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Definitions:

Legitimate Power

Power that is officially recognized and derived from a position of authority within an organization or society.

Referent Power

A form of power that stems from being admired or respected, often because of personality, skills, or relationships.

Expert Power

The ability to influence others based on the perception of an individual's expertise or knowledge in a specific area.

Always The Boss

A phrase describing someone who consistently takes charge or behaves in an authoritative way in various situations.