Prompt: After reviewing the data in the table, respond to the problems below. Indicate the answer you believe is correct.

Question 2: Determine the weight on debt capital that should be used to calculate Zonks weighted-average cost of capital:

A. 21.7%

B. 21%

C. 50%

D. 58.2%

Question 3: Determine the weight on equity capital that should be used to calculate Zonks weighted-average cost of capital:

A. 79%

B. 78.3%

C. 41.8%

D. 50%

Question 4: Using the above information, calculate Zonks weighted-average cost of capital:

A. 11.5%

B. 7.97%

C. 7.48%

D. 10.90%

Question 6: Assume that Zonk is a potential leveraged buyout candidate. Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pretax borrowing cost of 14 percent and 30 percent common equity. Compute the weighted average cost of capital for Zonk based on the new capital structure.

A. 8.85%

B. 12.56%

C. 13.01%

D. 9.94%

Zonk Corporation Data $7,460 $3,652 10.5% Total assets Interest-bearing debt Average pretax borrowing cost Common equity: Book value Market value Income tax rate Market equity beta $2,950 $13,685 35% 1.13 Zonk Corporation Data $7,460 $3,652 10.5% Total assets Interest-bearing debt Average pretax borrowing cost Common equity: Book value Market value Income tax rate Market equity beta $2,950 $13,685 35% 1.13