A Firm Has a Capital Structure with $100 Million in Equity

question 65

Multiple Choice

A firm has a capital structure with $100 million in equity and $100 million of debt.The cost of equity capital is 14% and the pretax cost of debt is 8%.If the marginal tax rate of the firm is 30%,compute the weighted average cost of capital of the firm.

• A)9.8%
• B)10.3%
• C)11.1%
• D)11.7%

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Definitions:

Appositional Bone Growth

The process by which bones increase in diameter and thickness through the addition of bone tissue at the surface.

Interstitial Growth

The growth process where tissues increase in size by the division and expansion of cells within the tissue, common in cartilage growth.

Epiphyseal Plate

A layer of cartilage located at the ends of long bones where new bone growth occurs in children and adolescents.

Articular Cartilage

A sleek, white substance that envelops the extremities of bones at their junctions, aiding in the diminution of friction and the absorption of impacts.