The Following Data Pertains to Zonk Corp -

Assume That Zonk Is a Potential Leveraged

question 23

Multiple Choice

The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions) :
$\begin{array}{llcc} \text { Total assets } &\$6,840 \\ \text { Interest-be aring debt } &\$3,562\\ \text { Average pre-tax borrowing cost } &11.5\%\\ \text {Common equity. } &\\ \text { Book value } &\$2,560\\ \text { Market value } &\$12,850\\ \text { Income tax rate} &35\%\\ \text { Market ecuity beta} &1.24\\\end{array}$
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Assume that Zonk is a potential leveraged buyout candidate. Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pre tax borrowing cost of 14 percent and 30 percent common equity. Compute the weighted average cost of capital for Zonk based on the new capital structure.

• A) 20.63%
• B) 12.56%
• C) 13.01%
• D) 9.94%

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Definitions:

Continuous Variation

Range of small differences in a trait.

Bell-Shaped Curve

A graphical representation of data that depicts a normal distribution, showing how a variable is spread across a population in a shape that resembles a bell.

Phenotypic Variation

The observable differences in appearance, function, and behavior among individuals of the same species due to genetic and environmental factors.

Monohybrid Cross

Cross between two individuals identically heterozygous for one gene; for example Aa × Aa.