A Firm Has a Capital Structure with $50 Million in Equity

question 6

Multiple Choice

A firm has a capital structure with $50 million in equity and $100 million of debt. The cost of equity capital is 12% and the pre-tax cost of debt is 7%. If the marginal tax rate of the firm is 30%, compute the weighted average cost of capital of the firm.

• A)7.3%
• B)6.8%
• C)5.6%
• D)6.3%

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Definitions:

World Price

The international market price of a good or service, determined through the global supply and demand.

Tariff Revenue

Income generated by the government from taxes imposed on imported goods, used as a tool for economic policy.

World Price

The global market cost of a good or service, shaped by worldwide demand and supply factors.

Tariff

A tariff is a tax imposed on imported goods and services, intended to make foreign products more expensive and protect domestic industries.