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

question 27

Multiple Choice

Compute the June 20xx cost of capital (rounded to nearest percent) for an investment center with the following information: $\begin{array}{|lr|}\hline \text { Pre-tax operating income for June 20xx } & \$ 17,500,000 \\\text { Assets at June 30, 20xx } & 6,200,000 \\\text { Current liabilities at June 30,20xx } & 4,000,000 \\\text { Long-term liabilities at June 30,20xx } & 1,500,000 \\\text { Income tax expense for June 30,20xx } & 5,000,000 \\\text { EVA } & 12,040,000 \\\hline\end{array}$

• A) 8 percent
• B) 21 percent
• C) 10 percent
• D) 14 percent

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Definitions:

Contract

A legally binding agreement between parties that outlines the terms and conditions of a particular arrangement or deal.

Forward Contracts

Agreements to buy or sell an asset at a future date for a price agreed upon today, often used for hedging or speculation.

Marked-To-The Market

An accounting practice where assets or securities are valued according to their current market price, not their purchase price or book value.

Resold

Items or assets that have been purchased and then sold to another party, potentially at a different price.