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:

Competitive Differentiation

The unique value proposition or distinct characteristics a product or service has that sets it apart from its competitors in the eyes of customers.

Business Success

The achievement of financial and operational goals within a business, often measured by profitability, market share, or expansion.

Factors of Production

The resources, including land, labor, capital, and entrepreneurship, utilized in the production of goods and services.

Entrepreneurs

Individuals who start and manage their own business, taking on financial risks in the hope of profit.