Compute the June 20xx Cost of Capital (Rounded to Nearest

question 2

Multiple Choice

Compute the June 20xx cost of capital (rounded to nearest percent) for an investment center with the following information: $\begin{array}{lr}\text { Pre-tax operating income for June 20xx } & \$ 17,500,000 \\\text { Assets at June 30, 20xx } & 6,200,000 \\\text { Current liabilities at June 30, 20xx } & 4,000,000 \\\text { Long-term liabilities at June 30, 20xx } & 1,500,000 \\\text { Income tax expense for June 30,20xx } & 5,000,000 \\\text { EVA } & 11,940,000\end{array}$

• A) 10 percent
• B) 25 percent
• C) 13 percent
• D) 17 percent

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Definitions:

Base Year

A specific year against which economic growth is measured, serving as a comparison point for other years.

CPI

Measuring the average price for a set basket of goods and services consumed by people, from food to healthcare and transportation, the Consumer Price Index employs their weighted average prices for assessment.

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, often measured by inflation indicators.

Prosperity Phase

A period of economic growth and expansion, marked by high levels of production, employment, and consumer confidence.