Multiple Choice
James Bay Water Park operates in a world with zero taxes and no financial distress.The firm has a debt/equity ratio of 1.The cost of equity is 15% and the cost of debt is 8%.The only difference between Whispering Pines Resort and James Bay Water Park is that Whispering Pines Resort has a debt/equity ratio of 2.According to M&M, the weighted average cost of capital for Whispering Pines Resort will be:
A) greater than the weighted average cost of capital for James Bay Water Park.
B) the same as the weighted average cost of capital for James Bay Water Park.
C) less than the weighted average cost of capital for James Bay Water Park.
D) insufficient information is provided to answer the question.
Correct Answer:
Verified
Correct Answer:
Verified
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