Reference no: EM132771149

Rotermagic Company supplies helicopters to corporate clients. Rotermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%, and equity capital that has a market value of $18 million (book value of $8 million). The cost of equity capital for Rotermagic is 15%, and its tax rate is 30%. Rotermagic has profit centers in four divisions that operate autonomously.

The company's results for 2020 are as follows:

                     Operating income                  Assets                Current liabilities

Miami             $1,750,000                     $11,500,000           $2,500,000
Indianapolis     2,400,000                     9,000,000                 3,500,000
Dallas           4,675,000                     27,500,000                 9,500,000
San Diego         4,200,000                 25,000,000            8,000,000

Problem 1: Compute Rotermagic's Weighted Average Cost of Capital.

A. 0480
B. 0800
C. 0912
D. 0988