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 14%
Its corporate tax rate is 40%. If the M&M world of taxes holds, what is the WACC for Fuji with 50% debt financing?
A) 8.75%
B) 9.00%
C) 9.15%
D) 9.70%
Answer: D
Explanation: D) WACC = × Re + × Rd × (1 - Tc) = × 14% + × 9% × ( 1 - 0.4) = 7.00% + 2.70% = 9.70%.
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