Springfield Corporation, Whose Tax Rate Is 40%, Has Two Sources

question 125

Multiple Choice

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. What is Springfield's weighted average cost of capital (WACC) ?

• A).0480
• B).0800
• C).0912
• D).1000

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