Bruce & Co

question 67

Multiple Choice

Bruce & Co.expects its EBIT to be $100,000 every year forever.The firm can borrow at 11 percent.Bruce currently has no debt,and its cost of equity is 18 percent.The tax rate is 31 percent.Bruce will borrow $61,000 and use the proceeds to repurchase shares.What will the WACC be after recapitalization?

• A)16.30 percent
• B)16.87 percent
• C)17.15 percent
• D)18.29 percent
• E)18.86 percent

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Definitions:

Commodity X

A placeholder term for any generic good or service in economic discussions or models.

Commodity Y

A generic term for any tradable good or material product that is interchangeable with other goods of the same type.

Utility Function

It's a mathematical representation of how a consumer's preferences over a set of goods and services translates into a level of satisfaction or utility.

Price of X

The cost at which a specific item or commodity, denoted as "X," is sold in the market.