Using the WACC in Practice: Poly's Parrot Shops Has Found

question 55

Multiple Choice

Using the WACC in practice: Poly's Parrot Shops has found that its cost of equity capital is 17 percent. It has 7-year maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 percent. If the company is financed with $120,000,000 of ordinary shares (market value) and $80,000,000 of debt, then what is the after-tax weighted average cost of capital for Poly's if it is subject to a 35 percent company tax rate?

• A) 10.20%
• B) 11.76%
• C) 11.88%
• D) 13.32%

---

Definitions:

Depreciable Asset

An asset that loses value over time due to wear and tear or obsolescence and for which depreciation can be applied in accounting.

Chlorinated Hydrocarbons

Chemical compounds containing chlorine, carbon, and hydrogen, which are used in industrial applications but can be harmful to the environment and health.

Pesticides

Chemical substances used to kill or control pests including insects, weeds, and disease-causing organisms, in agricultural and residential settings.

Contact Insecticides

Chemical substances that kill insects upon direct contact.