What Is the Weighted Average Cost of Capital After Taxes

question 54

Multiple Choice

What is the weighted average cost of capital after taxes for Moss Diet Centers if the target weights are 25% equity and 75% debt,and the costs of equity and after-tax debt are 15% and 12%,respectively? Assume the relevant tax rate is 20%.

• A) 12.5%
• B) 11.0%
• C) 12.8%
• D) 14.0%
• E) 13.5%

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Definitions:

Opportunity Cost

The overlook of beneficial possibilities from various options due to the selection of a singular alternative.

Tons

A unit of weight equivalent to 2,000 pounds (US) or 1,000 kilograms (metric ton).

Wheat

A cereal grain that is a worldwide staple food, used to produce foods like bread, pasta, and other flour-based products.

Production Possibility Frontier

A schematic that reveals all potential highest productions for two different products, given a predefined set of resources and various factors.