Use the Information Below to Answer the Following Question(s)

question 113

Multiple Choice

Use the information below to answer the following question(s) .
Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million) . The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandorf Company has profit centres in the following locations with the following data:

-A company's weighted-average cost of capital [WACC] was 9.6% last year. The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital. The tax rate is 35%. What is the company's cost of debt funding? (two decimal places only)

• A) 6.01%
• B) 6.25%
• C) 6.50%
• D) 9.25%
• E) 12.00%

---

Definitions:

Shame

A discomforting sensation of shame or upset stemming from an awareness of improper or silly actions.

Inherit

To receive genes from one's parents, or to receive property, titles, debts, rights, or obligations after someone's death.

Temperament

An individual's innate predisposition towards emotional reactivity and intensity, influencing their behavior and interactions with others.

Modify

Describes the act of making alterations or adjustments to something, often to improve it or to make it more suitable for a particular purpose.