CapCo Has a Capital Structure That Is Composed of $10

question 45

Multiple Choice

CapCo has a capital structure that is composed of $10 million of debt and $30 million of common equity.If CapCo is in the 30% marginal tax rate,what is its WACC if the yield to investors on CapCo debt is 8% and the cost of CapCo common equity is 12%?

• A) 8.3%
• B) 10.4%
• C) 11.0%
• D) none of the above

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Definitions:

Equity Theory

A theory in social psychology that asserts individuals assess their job satisfaction based on the fairness of their work rewards relative to others.

Inputs

Resources, information, or stimuli that are used to produce a process or influence an outcome in a system or project.

Outcomes

The results or consequences of actions taken by individuals or organizations.

Interactional Unfairness

The perception that interpersonal treatment or communication within an organization or social context is unjust or biased.