Use the Information for the Question(s)below

question 13

Multiple Choice

Use the information for the question(s) below.
Flagstaff Enterprises expected to have free cash flow in the coming year of $8 million,and this free cash flow is expected to grow at a rate of 3% per year thereafter.Flagstaff has an equity cost of capital of 13%,a debt cost of capital of 7%,and it has a 35% corporate tax rate.
-If Flagstaff maintains a debt to equity ratio of 1,then Flagstaff's pre-tax WACC is closest to:

• A)11.0%.
• B)10.5%.
• C)10.0%.
• D)9.0%.

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Definitions:

Natural Rate

The level at which a certain economic variable (such as unemployment or interest rate) naturally settles, in the absence of external influences.

Congressional Budget Office

A non-partisan federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.

Natural Rate

Often refers to the natural rate of unemployment, which is the level of unemployment consistent with sustainable economic growth, considering factors like market imperfections.

Estimated

An approximate calculation or judgment of the value, number, quantity, or extent of something, based on available data.