Qantas Is Discussing New Ways to Recapitalise the Firm and Raise

question 3

Multiple Choice

Qantas is discussing new ways to recapitalise the firm and raise additional capital. Its current capital structure has a 10% weight in ordinary shares, 20% in preference shares, and 70% in debt. The cost of equity capital is 15%, the cost of preference shares is 10%, and the pre-tax cost of debt is 8%. What is the weighted average cost of capital for Qantas if its marginal tax rate is 30%?

• A)7.98%
• B)7.01%
• C)7.42%
• D)8.01%

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Definitions:

Pure Competition

A business environment where many small companies sell identical products and there are no barriers to entering or leaving the market, resulting in perfect competition.

Pure Monopoly

A market framework where there is only one provider offering a distinctive product without any closely resembling alternatives.

Increasing Profits

A financial strategy or outcome where a business experiences a growth in net earnings over time.

Lowering Price

A strategic move where a seller reduces the price of goods or services to attract more customers or beat competitors.