Taggart Transcontinental Currently Has No Debt and an Equity Cost

question 27

Multiple Choice

Taggart Transcontinental currently has no debt and an equity cost of capital of 16%.Suppose that Taggart decides to increase its leverage and maintain a market debt-to-value ratio of 1/3.Suppose Taggart's debt cost of capital is 9% and its corporate tax rate is 35%.Assuming that Taggart's pre-tax WACC remains constant,then with the addition of leverage its effective after-tax WACC will be closest to:

• A)12.9%
• B)13.0%
• C)15.0%
• D)16.0%

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Definitions:

Unconscious Level

Mental processes that occur without conscious awareness or control.

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The degree of awareness an individual has about their surroundings, thoughts, feelings, and sensations at any given time.

Preconscious Level

Part of the mind that contains thoughts and feelings not currently in consciousness but can be readily brought to consciousness.

Problematic Emotional Reactions

Emotional responses that are excessive or inappropriate to situations, often leading to difficulties in functioning.