A Firm Requires an Investment of $30,000 and Borrows $7500

question 43

Multiple Choice

A firm requires an investment of $30,000 and borrows $7500 at 7%. If the return on equity is 18%, what is the firm's pretax WACC?

• A) 7.6%
• B) 18.3%
• C) 21.4%
• D) 15.3%

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, which contributes towards covering fixed expenses and generating profit.

Sales Mix

The ratio of each product sold by a company to its total sales, important for understanding profitability and guiding product strategy.

Operating Loss

The result when a company's operating expenses exceed its gross profits or revenues.

Fixed Costs

Expenses that do not change with the level of production or sales activities within a certain range.