A Firm Has an Expected Return on Equity of 15

question 64

Multiple Choice

A firm has an expected return on equity of 15% and an after-tax cost of debt of 6%.What debt-equity ratio produces a WACC of 12%?

• A) 0.50
• B) 0.75
• C) 0.67
• D) 0.33

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Definitions:

Deferred Tax Asset

A financial statement item that represents an entity's right to reduce future tax payments, due to temporary differences between its reported income and its taxable income.

Acquired Land

Land obtained through purchase or other means, which appears as an asset on the balance sheet and might be used for operations or investment.

Parent Company

A corporation that owns more than half of the voting stock of another company, thereby controlling it and often consolidating its financial statements with its own.

Current Accounting Regulations

The prevailing rules and standards that govern how financial records are maintained and reported, varying by jurisdiction and overseen by regulatory bodies.