A Firm Uses Only Debt and Equity in Its Capital

question 89

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of equity is 75 percent. The firm's cost of equity is 16 percent and it has a tax rate of 30 percent. If the firm's WACC is 13%, what is the firm's before-tax cost of debt?

• A)6.89 percent
• B)6.28 percent
• C)5.97 percent
• D)5.71 percent

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Definitions:

Inclusive Fitness

A concept in evolutionary biology that considers an organism's success in passing on its genes, including through kinship.

Co-efficient Of Relatedness

A measure of the genetic similarity between two individuals, often used to predict the likelihood of gene sharing.

Hamilton's Rule

A principle in evolutionary biology stating that an individual will act to increase its own genetic success, potentially aiding related individuals at a cost to itself if the genetic benefits exceed the costs.

Intersexual Selection

A mode of natural selection where members of one biological sex choose mates of the other sex to mate with, often based on certain desirable characteristics.