A firm has three components in its capital structure: debt, preference shares and ordinary shares. The before-tax cost of debt is 4.0%, the before-tax cost of preference shares is 8.7% and the before-tax cost of ordinary shares is 11.9%. The proportion of debt in the capital structure is 20%, the proportion of preference shares is 15% and the proportion of ordinary shares is 65%. The corporate tax rate is 30%. What is the firm's Weighted Average Cost of Capital? O a. 9.60% O b. 9.21% O c. 9.84% O d. 6.89%

A firm has three components in its capital structure: debt, preference shares and ordinary shares. The before-tax cost of debt is 4.0%, the before-tax cost of preference shares is 8.7% and the before-tax cost of ordinary shares is 11.9%. The proportion of debt in the capital structure is 20%, the proportion of preference shares is 15% and the proportion of ordinary shares is 65%. The corporate tax rate is 30%. What is the firm's Weighted Average Cost of Capital? O a. 9.60% O b. 9.21% O c. 9.84% O d. 6.89%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 12QA

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