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fiasKO [112]
3 years ago
15

A firm uses only debt and equity in its capital structure. The firm's weight of equity is 70 percent. The firm's cost of equity

is 13 percent and it has a tax rate of 30 percent. If the firm's WACC is 11 percent, what is the firm's before-tax cost of debt?
a) 7.17 percent
b) 9.05 percent
c) 6.38 percent
d) 5.36 percent
Business
1 answer:
aliina [53]3 years ago
7 0

Answer:

b) 9.05 percent

Explanation:

The computation of the firm before tax cost of debt is shown below:

The Weight of debt is

= 100 - 70

=30%

Now  

WACC = Respective cost × Respective weight

11 = (0.7 × 13) + (0.3 × Cost of debt)

11 = 9.1 + (0.3 × Cost of debt)

Cost of debt = (11 - 9.1) ÷ 0.3

= 6.333%(Approx)

Now

Pre-tax Cost of debt is

= Cost of debt ÷ (1 - tax rate)

= 6.333 ÷ (1 - 0.3)

= 9.05%

hence, the correct option is b.

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Explanation:

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3 0
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ohaa [14]
Hello!

You forgot the alternatives!

incentives 
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<span>markets </span>
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</span>
The term that is most closely related to trade-off, from the list above, is: scarcity. Scarcity is the condition that moves the trade-offs, it determines the quantity of each product you need or have. So, for example, if you need a product that you don't have enough and another that you have in excess, you can exchange it with someone that have interest in your product and has the one that you need.

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