A Firm Has a Capital Structure with $50 Million in Equity

question 88

Multiple Choice

A firm has a capital structure with $50 million in equity and $100 million of debt. The cost of equity capital is 11% and the pretax cost of debt is 5%. If the marginal tax rate of the firm is 40%, compute the weighted average cost of capital of the firm.

• A) 4.5%
• B) 5.1%
• C) 5.67%
• D) 6.5%

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Definitions:

Immune Response

The body's defense mechanism against foreign substances or pathogens, involving both specific and nonspecific components.

Classical Conditioning

A learning process that occurs when two stimuli are repeatedly paired: a response that is at first elicited only by the second stimulus is eventually elicited by the first stimulus alone.

Conditioned Stimulus

An initially neutral signal that, once paired with an unconditioned stimulus, ultimately leads to eliciting a conditioned response.

Discrimination

Unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, or sex.