A Firm Uses Only Debt and Equity in Its Capital

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of equity is 75 percent. The firm's cost of equity is 16 percent and it has a tax rate of 21 percent. If the firm's WACC is 13%, what is the firm's before-tax cost of debt?

A) 6.89 percent
B) 6.28 percent
C) 5.71 percent
D) 5.06 percent