SIROM Scientific Solutions Has $4 Million of Outstanding Equity and $12

question 56

Multiple Choice

SIROM Scientific Solutions has $4 million of outstanding equity and $12 million of bank debt.The bank debt costs 5% per year.The estimated equity beta is 1.If the market risk premium is 7% and the risk-free rate is 4%,compute the weighted average cost of capital if the firm's tax rate is 30%.

• A)4.65%
• B)5.01%
• C)5.38%
• D)5.98%

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent or salaries.

Break-Even Point

The level of production or sales at which total revenues equal total expenses, resulting in neither profit nor loss.

Cost-Volume-Profit Chart

A graphical representation that shows the relationship between a company's cost, production volume, and profits.

Variable Costs

Charges that adjust based on the volume of sales or production levels.