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:

Investment

Allocating monetary assets with the aim of achieving returns or generating revenue.

Property Taxes

Taxes levied by local government on real estate properties, based on the assessed value of the property.

Vendor

A person or company offering something for sale, especially a trader in the goods or services sector.

Purchaser

An individual or entity that buys goods or services.