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

question 56

Multiple Choice

Using the WACC in practice: Marley's Pipe Shops has found that its common 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 firm is financed with $120,000,000 of common 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 marginal tax rate?

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

---

Definitions:

Pericycle

Layer of cells surrounding the vascular tissue of roots; produces branch roots.

Companion Cell

Plant cell in the vascular tissue of plants that metabolically supports the conducting cells of the phloem.

Sieve-Tube Member

A type of elongated cell in the phloem of flowering plants, responsible for transporting sugars and other nutrients.

Sieve-Tube Members

Specialized cells in the phloem of higher plants that facilitate the transport of sugars and other nutrients from the leaves to the rest of the plant.