Suppose that a company has total financing where 10% comes from bonds, 10% from a loan, and 80% from shareholders’ equity. The bonds pay on average a 10% interest rate, the loan has a 10% interest rate, and shareholders require a 10% return. The interest payment on the loan is tax deductible and the tax rate is 20%. What is the simple average cost of capital equal to?

A. 0.098

B. 0.10

C. 0.033

D. 0.073

Answer rating: 100% (QA)

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