Using the WACC in Practice: Marley's Pipe Shops Has Found

question 3

Multiple Choice

Using the WACC in practice: Marley's Pipe Shops has found that its equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. Its cost of debt financing is 12 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 Marley's if it is subject to a 35 percent company tax rate?

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

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