Balance Corp

question 66

Multiple Choice

Balance Corp.has a weighted average cost of capital equal to 5.5%.If the firm is financed with 25% equity and 75% debt and if the after-tax of that debt is 4%,then what is the cost of equity for the firm?

• A) .025
• B) .06
• C) .1
• D) none of the above

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Definitions:

Short Run

The short run in economics refers to a period during which at least one input, such as plant size, is fixed and cannot be changed by the firm.

Competitive Firm

A company operating in a market where it has to compete with other firms for consumers, and has no power to set the price of its products, leading to market-driven pricing strategies.

Monopolistically Competitive Industry

An industry characterized by many firms offering products or services that are similar, but not perfect substitutes, leading to competitive yet differentiated marketplaces.

Nonprice Competition

Strategies used by companies to attract customers through style, service, or location rather than through lower prices.