A Firm Has a Capital Structure with $75 Million in Equity

question 70

Multiple Choice

A firm has a capital structure with $75 million in equity and $45 million of debt. The cost of equity capital is 10% and the pretax cost of debt is 7%. If the marginal tax rate of the firm is 40%, compute the weighted average cost of capital of the firm.

• A) 6.7%
• B) 7.0%
• C) 7.8%
• D) 8.6%

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