You Were Hired as a Consultant to Quigley Company,whose Target

question 18

Multiple Choice

You were hired as a consultant to Quigley Company,whose target capital structure is 35% debt,10% preferred,and 55% common equity.The interest rate on new debt is 6.50%,the yield on the preferred is 6.00%,the cost of retained earnings is 11.25%,and the tax rate is 40%.The firm will not be issuing any new stock.What is Quigley's WACC?

• A)8.15%
• B)8.48%
• C)8.82%
• D)9.17%
• E)9.54%

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Definitions:

Annual Fixed Cost

Expenses that do not change in proportion to the activity of a business, within the period of a year.

Socially Efficient

An economic condition where resources are allocated in a way that maximizes total social welfare.

Marginal Cost

The change in total production cost that arises when the quantity produced is incremented by one unit.

Total Profit

The total income earned by a firm after deducting all costs and expenses from total revenue.