Suppose That TipsNToes, Inc

question 94

Multiple Choice

Suppose that TipsNToes, Inc.'s capital structure features 40 percent equity, 60 percent debt, and that its before-tax cost of debt is 9 percent, while its cost of equity is 15 percent. If the appropriate weighted average tax rate is 34 percent, what will be TipsNToes' WACC?

• A)9.36 percent
• B)9.56 percent
• C)11.40 percent
• D)24.00 percent

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Definitions:

Diminishing Marginal Product

A principle stating that as additional units of a variable input are added to a fixed input, the additional output produced by each new unit will eventually decline.

Marginal Product

The additional output generated by using one more unit of a specific input, keeping other inputs constant.

Output

The total amount of goods or services produced by a company, industry, or economy.

Marginal Product

The additional output gained by adding one more unit of a specific input, while keeping other inputs constant.