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:

Contemplation

A phase of reflection or deep thought, often preceding a decision or action.

Contemplation Stage

The period in which an individual is aware a change is needed and is actively considering making that change but has not yet committed to taking action.

Tangible Assistance

Physical or concrete help provided to individuals or groups, such as resources or material aid.

Extrinsic Motivation

Motivation that involves external incentives such as rewards and punishments.