Question
A firm's cost of equity is 20%, its pre-tax cost of debt is 7%, and its tax rate is 25%. Its WACC is 10%. What
A firm's cost of equity is 20%, its pre-tax cost of debt is 7%, and its tax rate is 25%. Its WACC is 10%. What share of its capital structure is equity, and what share is net debt? Group of answer choices:
a) 44.9% equity, 55.1% debt
b) 27.8% equity, 84.6% debt
c) 72.1% equity, 45.0% debt
d) 18.1% equity, 84.9% debt
e) 32.2% equity, 67.8% debt
f) not enough information
2. When an investor sells a firm's shares in the secondary market, the investor receives cash from the firm, and the firm's cash on its balance sheet will fall accordingly. Group of answer choices:
a) True
b) False
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