CIMA Financial Strategy F3 Question # 8 Topic 1 Discussion

CIMA Financial Strategy F3 Question # 8 Topic 1 Discussion

F3 Exam Topic 1 Question 8 Discussion:
Question #: 8
Topic #: 1

Company WWW is identical in all operating and risk characteristics to Company ZZZ. but their capital structures differ. Company WWW and Company ZZZ both pay corporate income tax at 20%

Company WWW has a gearing ratio (debt: equity) of 1:3 Its pre-tax cost of debt is 6%.

Company ZZZ Is all-equity financed. Its cost of equity is 15%

What is the cost of equity tor Company WWW?


A.

17.0%


B.

18.0%


C.

17.4%


D.

17.7%


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