A Company's Capital Structure Is Made Up of 40% Debt

question 65

Multiple Choice

A company's capital structure is made up of 40% debt and 60% common equity (both at market values) .The interest rate on bonds similar to those issued by the company is 8%.The cost of equity is estimated to be 15%.The income tax rate is 40%.The company's weighted cost of capital is

• A)11.5%.
• B)12.2%.
• C)10.9%.
• D)8)9%.

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Definitions:

Wage Rates

The standard amount of money paid for work performed, typically expressed per hour, day, or piece.

Price Elasticity

A calculation that determines how significantly a good's demanded quantity is influenced by price changes, revealing consumer sensitivity to price shifts.

Labor's Share

The portion of national income or output that is allocated to workers in the form of wages, salaries, and other forms of compensation.

Total Costs

The full price of manufacturing, which includes both constant and fluctuating expenses.