A Firm Has $8 Billion of Common Stock and $14

question 98

Multiple Choice

A firm has $8 billion of common stock and $14 billion of debt.The cost of equity is 7.5%,and the pretax cost of debt is 3.8%.If the firm's tax rate is 30%,what is the firm's WACC?

• A)4.84%
• B)3.6%
• C)5.15%
• D)4.42%
• E)5.65%

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Definitions:

Balance Sheet

This report presents a summary of a firm's financial status by listing its resources, debts, and the equity held by investors on a certain date.

Spreadsheet

A digital tool or program that allows users to organize, calculate, and analyze data across a grid of rows and columns.

Job-Order Costing

An accounting system used to ascertain costs for each job or project separately, often used in manufacturing or service industries where each job is different.

Manufacturing Overhead

All indirect costs associated with the production process, including equipment maintenance, factory rent, and utilities.