1. The General Store has a cost of equity of 15.8 percent, a pre-tax cost of debt of 7.7 percent, and a tax rate of 32 percent. What is the firm's weighted average cost of capital if the debt-equity ratio is 0.40?
A. 10.18 percent
B. 11.72 percent
C. 12.78 percent
D. 13.30 percent
E. 14.93 percent12.
2. A firm wants to create a weighted average cost of capital (WACC) of 10.4 percent. The firm's cost of equity is 14.5 percent and its pre-tax cost of debt is 8.5 percent. The tax rate is 34 percent. What does the debt-equity ratio need to be for the firm to achieve its target WACC?
A. 0.51
B. 0.57
C. 0.62
D. 0.70
E. 0.86
