Fuji Inc. is registered as a business in the film-making industry. It can borrow in the debt market at 9%. Its cost of equity with 50% debt is 12%. Its corporate tax rate is 30%
If the M&M world of taxes holds, what is the WACC for Fuji with 50% debt financing?
A) 8.75%
B) 8.90%
C) 9.00%
D) 9.15%
Answer: D
Explanation: D) WACC = × Re + × Rd × (1 - Tc) = × 12% + × 9% × (1 - 0.3) = 6.00% + 3.15% = 9.15%.
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