A Firm Has a Capital Structure with $50 Million in Equity

Multiple Choice

A firm has a capital structure with $50 million in equity and $100 million of debt. The cost of equity capital is 11% and the pretax cost of debt is 5%. If the marginal tax rate of the firm is 40%, compute the weighted average cost of capital of the firm.

A) 4.5%
B) 5.1%
C) 5.67%
D) 6.5%