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

question 38

Multiple Choice

A firm has a capital structure with $50 million in equity and $100 million of debt.The cost of equity capital is 12% and the pretax cost of debt is 7%.If the marginal tax rate of the firm is 40%,compute the weighted average cost of capital of the firm.

• A)5.6%
• B)6.3%
• C)6.8%
• D)7.7%

---

Definitions:

Foreign Corrupt Practices Act

A United States law aimed at preventing American companies from engaging in bribery and other unethical practices in foreign countries to obtain or retain business.

Facilitation Payments

These are small sums of money paid to expedite or secure the performance of routine governmental actions by officials, often viewed as a form of bribery in many jurisdictions.

Cultural Differences

Variations in the norms, values, beliefs, and practices among different groups, societies, or individuals, arising from ethnic, racial, socioeconomic, geographical, or other distinctions.

Ethical Issues

Concerns or dilemmas that involve principles of right and wrong behavior.