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:

Ecosphere

The global interconnection of all ecosystems and living organisms, functioning as a single self-regulating entity.

Compassion

The emotional response to perceiving suffering and involves an authentic desire to help alleviate that suffering.

Instrumental Value

The value of something not for what it is itself, but for its utility in achieving something else.

Dollar Value

The worth of a good or service expressed in terms of the amount of currency required to purchase it.