Kelso's Has a Debt-Equity Ratio of 0

question 49

Multiple Choice

Kelso's has a debt-equity ratio of 0.6 and a tax rate of 35 percent.The firm does not issue preferred stock.The cost of equity is 14.5 percent and the aftertax cost of debt is 4.8 percent.What is the weighted average cost of capital?

• A)10.46 percent
• B)10.67 percent
• C)10.86 percent
• D)11.38 percent
• E)11.57 percent

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Definitions:

Standard Direct Materials

The predetermined cost and quantity of raw materials expected to be used in manufacturing a product.

Standard Costs

Predetermined or budgeted costs serving as a benchmark for evaluating actual performance and cost control.

Cost Control

The practice of identifying and reducing business expenses to increase profits, involving the analysis and management of cost elements.

Standard Costs

The planned cost of manufacturing a product, which includes material, labor, and overhead costs, used for budgeting and performance evaluation.