A Firm Requires an Investment of $30 000 and Borrows

question 47

Multiple Choice

A firm requires an investment of $30 000 and borrows $10 000 at 6%. If the return on equity is 15% and the tax rate is 30%, what is the firm's WACC?

• A)12.3%
• B)11.4%
• C)7.8%
• D)10.1%

---

Definitions:

Normal Profit

The minimum profit necessary for a company to remain competitive in the market, equating to the opportunity cost of capital and resources.

Implicit Costs

Indirect expenses that do not involve a direct cash outlay but represent an opportunity cost, such as using resources for one purpose over another.

Average Product

The output per unit of input, such as the number of goods produced per worker, used to measure productivity efficiency.

Marginal Product

The additional output that is produced by employing one more unit of a factor of production, holding other factors constant.