Answer: 9.80%.

## Explanation The Weighted Average Cost of Capital (WACC) is calculated using the formula: \[ \text{WACC} = w_d \times r_d \times (1 - t) + w_e \times r_e \] Where: - \( w_d \) = weight of debt = 25% = 0.25 - \( r_d \) = before-tax cost of debt = 4% = 0.04 - \( t \) = marginal tax rate = 20% = 0.20 - \( w_e \) = weight of equity = 75% = 0.75 - \( r_e \) = cost of equity = 12% = 0.12 **Step-by-step calculation:** 1. **After-tax cost of debt:** \( r_d \times (1 - t) = 0.04 \times (1 - 0.20) = 0.04 \times 0.80 = 0.032 \) or 3.2% 2. **Weighted cost of debt:** \( w_d \times \text{after-tax cost of debt} = 0.25 \times 0.032 = 0.008 \) or 0.8% 3. **Weighted cost of equity:** \( w_e \times r_e = 0.75 \times 0.12 = 0.09 \) or 9.0% 4. **Total WACC:** \( 0.008 + 0.09 = 0.098 \) or 9.8% **Verification:** \[ \text{WACC} = (0.25 \times 0.04 \times 0.80) + (0.75 \times 0.12) \] \[ = (0.25 \times 0.032) + 0.09 \] \[ = 0.008 + 0.09 = 0.098 = 9.8\% \] Therefore, the correct answer is **A. 9.80%**. **Why other options are incorrect:** - **B. 10.00%**: This would be the result if you forgot to account for the tax shield on debt (i.e., used before-tax cost of debt without tax adjustment). - **C. 10.25%**: This might result from incorrectly calculating the tax effect or using wrong weights.

Author: LeetQuiz .