For a Firm That Has Both Debt and Equity in Its

Multiple Choice

For a firm that has both debt and equity in its capital structure,its financing cost can be represented by the weighted average cost of capital that is computed by

A) weighing the pre-tax borrowing cost of the firm and the cost of equity capital,using the debt as the weight.
B) weighing the after-tax borrowing cost of the firm and the cost of equity capital,using the debt as the weight.
C) K = (1 − λ) K_l + λ (1 − τ) i where: K = weighted average cost of capital K_l = cost of equity capital for a leveraged firm i = before-tax borrowing cost τ = marginal corporate income tax rate λ = debt-to-total-market-value ratio
D) weighing the after-tax borrowing cost of the firm and the cost of equity capital,using the debt as the weight.Additionally,this may be expressed as K = (1 − λ) K_l + λ(1 − τ) i where: K = weighted average cost of capital K_l = cost of equity capital for a leveraged firm i = before-tax borrowing cost τ = marginal corporate income tax rate λ = debt-to-total-market-value ratio