Assume That XYZ Corporation Is a Levered Company with the Following

question 64

Multiple Choice

Assume that XYZ Corporation is a levered company with the following information: K_l = cost of levered equity capital for XYZ = 13%
I = before-tax borrowing cost = 8%
T = marginal corporate income tax rate = 30%
If XYZ's debt-to-total-market-value ratio is 40%, then its weighted average cost of capital, K, is:

• A)8%
• B)9%
• C)10%
• D)12%

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, typically out of the company's profits.

Market Price

The price at which an asset or service can be bought or sold in a given market.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health of the business.

Company

An organization created by several individuals for the purpose of running and managing a business, which can be either commercial or industrial in nature.