What Proportion of a Firm Is Equity Financed If the WACC

question 72

Multiple Choice

What proportion of a firm is equity financed if the WACC is 14%,the before-tax cost of debt is 10.77%,the tax rate is 35%,and the required return on equity is 18%?

• A) 54.00%
• B) 63.64%
• C) 70.26%
• D) 77.78%

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Definitions:

Net Present Value (NPV)

NPV is a financial metric used in capital budgeting to assess the profitability of an investment or project, calculated as the difference between the present value of cash inflows and outflows.

Capital Budgeting

The process by which investors or company management evaluate and select long-term investments that are likely to yield positive returns.

Long-Term Effects

The lasting outcomes or impacts that result from a specific action or event, considered over an extended period of time.

Short-Duration

Describes investments or financial instruments that have a short time until maturity, typically less than one year.