A Firm Has a WACC of 14%,an Expected Return on Equity

question 23

Multiple Choice

A firm has a WACC of 14%,an expected return on equity of 19%,and a debt-to-asset ratio of 60%.If the firm does not pay tax,what is the interest rate on the debt?

• A) 6.50%
• B) 9.90%
• C) 10.67%
• D) 11.14%

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Definitions:

Consideration

The value (such as money, a service, or a promise) that is exchanged between parties in a contract.

Doctrine of Promissory Estoppel

A legal principle that prevents a promisor from retracting a promise that the promisee has relied upon, resulting in a significant change of position.

Disputed Debt

A disagreement between a creditor and a debtor over the existence, amount, or terms of repayment of a debt.

Mutual Assent

refers to the agreement between parties in a contract, shown by a valid offer and acceptance, which is required for a contract to be enforceable.