CA VEE FINANCE - CHAPTER 4.FINAL TEST 2026\2027.
Rainforest Products Ltd. has issued a bond to finance its expansion. The bond offers a 6% semi-
annual coupon and has a maturity of 6 years. Upon issue, the bond sells at 98.5% of face value.
The marginal tax rate for Rainforest is 30%. The before-tax cost of debt for the company shall be
closest to:
A:2.21%
B: 3.15%
C: 4.40%
D: 6.00%
E: 6.30%
E: 6.30%
Etwaress is issuing a 12-year, 7% semi-annual coupon bond, selling for 95 with face value 100. If
Etwaress's marginal tax rate is 35%, then Etwaress's after-tax cost of debt is closest to:
A: 5.0%
B: 6.4%
C: 7.6%
D: 2.5%
E: 3.8%
A: 5.0%
Douglas Jardine, a financial analyst, is estimating the cost of capital for a company. The
information that he has collected is presented below:
Capital component; Cost of capital component; Book value weight; Market value weight; Target
value weight
Equity; 12.5%; 50%; 70%; 60%
Debt; 8.5%; 50%; 30%; 40%
Given a marginal tax rate of 30%, the weighted average cost of capital (WACC) that Douglas
Jardine shall use in his analysis is closest to
A: 9.20%
B: 9.90%
, CA VEE FINANCE - CHAPTER 4.FINAL TEST 2026\2027.
C: 10.50%
D: 10.90%
E: 11.30%
B: 9.90%
When calculating the weights to use for the weighted average cost of capital, your first
preference should be to use:
A: The company's current capital structure
B: The company's target capital structure
C: The company's inferred target capital structure
D: An average of the company's competitors' capital structures
E: The company's current capital structure, adjusted for trends
B: The company's target capital structure
San Andrias Mineral Resources Ltd has raised $10 million of capital in equal proportions of debt
and equity. Before-tax cost of debt and equity are 7.5% and 11%, respectively. The marginal tax
rate for the company is 28%. The company's after-tax cost of debt and equity shall be
A: Debt = 5.4% Equity = 11%
B: Debt = 5.4% Equity = 7.92%
C: Debt = 7.5% Equity = 11%
D: Debt = 9.6% Equity = 11%
E: Debt = 9.6% Equity = 14.08%
A: Debt = 5.4% Equity = 11%
New Horizon Construction Ltd. has obtained a loan for $100 million at an interest rate of 8.25%.
Let X% be the after-tax cost of debt when the marginal tax rate is 25%, and let Y% be the after-
tax cost of debt when the marginal tax rate is 20%.
Calculate Y%−X%.
A: −5%
B: −0.4%
C: 0
D: +0.4%
E: +5%
D: +0.4%
Rainforest Products Ltd. has issued a bond to finance its expansion. The bond offers a 6% semi-
annual coupon and has a maturity of 6 years. Upon issue, the bond sells at 98.5% of face value.
The marginal tax rate for Rainforest is 30%. The before-tax cost of debt for the company shall be
closest to:
A:2.21%
B: 3.15%
C: 4.40%
D: 6.00%
E: 6.30%
E: 6.30%
Etwaress is issuing a 12-year, 7% semi-annual coupon bond, selling for 95 with face value 100. If
Etwaress's marginal tax rate is 35%, then Etwaress's after-tax cost of debt is closest to:
A: 5.0%
B: 6.4%
C: 7.6%
D: 2.5%
E: 3.8%
A: 5.0%
Douglas Jardine, a financial analyst, is estimating the cost of capital for a company. The
information that he has collected is presented below:
Capital component; Cost of capital component; Book value weight; Market value weight; Target
value weight
Equity; 12.5%; 50%; 70%; 60%
Debt; 8.5%; 50%; 30%; 40%
Given a marginal tax rate of 30%, the weighted average cost of capital (WACC) that Douglas
Jardine shall use in his analysis is closest to
A: 9.20%
B: 9.90%
, CA VEE FINANCE - CHAPTER 4.FINAL TEST 2026\2027.
C: 10.50%
D: 10.90%
E: 11.30%
B: 9.90%
When calculating the weights to use for the weighted average cost of capital, your first
preference should be to use:
A: The company's current capital structure
B: The company's target capital structure
C: The company's inferred target capital structure
D: An average of the company's competitors' capital structures
E: The company's current capital structure, adjusted for trends
B: The company's target capital structure
San Andrias Mineral Resources Ltd has raised $10 million of capital in equal proportions of debt
and equity. Before-tax cost of debt and equity are 7.5% and 11%, respectively. The marginal tax
rate for the company is 28%. The company's after-tax cost of debt and equity shall be
A: Debt = 5.4% Equity = 11%
B: Debt = 5.4% Equity = 7.92%
C: Debt = 7.5% Equity = 11%
D: Debt = 9.6% Equity = 11%
E: Debt = 9.6% Equity = 14.08%
A: Debt = 5.4% Equity = 11%
New Horizon Construction Ltd. has obtained a loan for $100 million at an interest rate of 8.25%.
Let X% be the after-tax cost of debt when the marginal tax rate is 25%, and let Y% be the after-
tax cost of debt when the marginal tax rate is 20%.
Calculate Y%−X%.
A: −5%
B: −0.4%
C: 0
D: +0.4%
E: +5%
D: +0.4%
