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

question 33

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 equity capital? (two decimal places only)

• A) 6.00%
• B) 6.25%
• C) 6.50%
• D) 9.25%
• E) 12.00%

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