Using the WACC in Practice: Ronnie's Comics Has Found That

question 42

Multiple Choice

Using the WACC in practice: Ronnie's Comics has found that its cost of common equity capital is 15 percent and its cost of debt capital is 12 percent. If the firm is financed with $250,000,000 of common shares (market value) and $750,000,000 of debt, then what is the after-tax weighted average cost of capital for Ronnie's if it is subject to a 35 percent marginal tax rate?

• A) 6.05%
• B) 9.6%
• C) 8.75%
• D) 13.65%

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Definitions:

Trade

The exchange of goods and services between parties, which can occur within an economy (domestic trade) or between economies (international trade).

Opportunity Cost

The financial sacrifice involved in overlooking the closest alternative when a choice is made or one option is favored over another.

San Francisco

A major city in California, USA, known for its iconic Golden Gate Bridge, steep streets, and vibrant cultural history.

City Manager

An official appointed as the administrative manager of a city, in a council-manager form of city government.