Question
Rearden Metal currently has no debt and an equity cost of capital of 14%. Suppose that Rearden decides to increase its leverage and maintain a
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Rearden Metal currently has no debt and an equity cost of capital of 14%. Suppose that Rearden decides to increase its leverage and maintain a debt to equity ratio of 1 and its cost of debt will be 8%. The corporate tax rate is 40%. Assuming that Rearden's pre-tax cost of capital (Pretax WACC) remains constant, then with the addition of leverage, Rearden's effective after-tax cost of capital (WACC) will be closest to:
A. 13.4%
B. 12.8%
C. 10.8%
D. 12.4%
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Monetary Policy And Public Finance
Authors: G. C. Hockley
1st Edition
1138704792, 978-1138704794
