Vancouver's Famous Barbeque has estimated the following cost of debt (before-tax) and cost of equity.

$\begin{array}{ccc}
\text { Proportion of Debt} & \text { After-tax Cost of Debt }& \text { Cost of Equity }\
\hline 30 \% &7.0 \% &11.1\% \
40 \% & 7.3 \% & 11.9\% \
50 \% & 8.4 \% & 13.7\% \
\end{array}$
What is the cost of capital for Vancouver's optimal capital structure given the above information and a 40% effective tax rate?

Question

Vancouver's Famous Barbeque has estimated the following cost of debt (before-tax) and cost of equity.

$\begin{array}{ccc}
  \text {  Proportion of Debt} &  \text {  After-tax Cost of Debt }&  \text {  Cost of Equity }\
\hline  30 \%  &7.0 \% &11.1\% \
 40 \% &  7.3 \% &  11.9\%  \
50 \%  &  8.4 \%  &  13.7\%  \
\end{array}$
 What is the cost of capital for Vancouver's optimal capital structure given the above information and a 40% effective tax rate?

Quizplus · Accepted Answer

The Answer is B

Vancouver's Famous Barbeque Has Estimated the Following Cost of Debt