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This question was created from Spring 2010 Exam 2


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14. Assume that a firm has a capital structure consisting of 30 percent debt, 10 percent,
preferred, and the remainder as common stock. Also assume that the cost of preferred
is 9.0 percent, the cost of common stock is 18.50 percent, the firm’s tax rate is 40.0
percent, and the firm’s weighted average cost of capital is 13.53 percent. Given this
information, determine the firm’s before-tax cost of debt. A. 8.50%
B. 7.00%
C. 7.50%
D. 8.00%
E. 8.50%

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