A Firm Has a Total Market Value of $10 Million

question 38

Multiple Choice

A firm has a total market value of $10 million while its debt has a market value of $4 million.What is the after-tax weighted average cost of capital if the before-tax cost of debt is 10 percent, the cost of equity is 15 percent, and the tax rate is 35 percent?

• A)13 percent
• B)11.6 percent
• C)8.8 percent
• D)10.4 percent

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Definitions:

Monetary Expansion

An increase in the money supply in an economy, typically achieved through central banking activities, leading to potential effects on inflation, interest rates, and economic growth.

Tariffs

Taxes imposed by a government on imported goods, often used to protect domestic industries from foreign competition.

Tax Rate Reduction

A decrease in the percentage at which income, profits, or transactions are taxed, aimed at stimulating economic growth or achieving fiscal policy goals.

Marginal Tax Rates

The rate at which the next additional unit of income will be taxed, often increasing progressively with higher income levels.