A Firm Has a Capital Structure with $50 Million in Equity

question 88

Multiple Choice

A firm has a capital structure with $50 million in equity and $100 million of debt. The cost of equity capital is 11% and the pretax cost of debt is 5%. If the marginal tax rate of the firm is 40%, compute the weighted average cost of capital of the firm.

• A) 4.5%
• B) 5.1%
• C) 5.67%
• D) 6.5%

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