A Firm Has a WACC of 8

question 30

Multiple Choice

A firm has a WACC of 8.5%, a pretax cost of debt of 5%, a cost of equity of 12%, and a marginal corporate income tax rate is of 35%. What percent of the firm's capital structure is financed with equity?

• A) 50%
• B) 60%
• C) 70%
• D) None of the above.

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Definitions:

Marginal Cost

The supplementary cost attached to the output of an additional product or service unit.

Diminishing Marginal Product

The principle stating that as one inputs more of a factor of production while holding other inputs constant, the added output produced from each additional unit of the variable input eventually decreases.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, or loan payments.

Marginal Cost

The added expense incurred by creating one more unit of a product or service.