Crab Cakes Ltd

question 115

Multiple Choice

Crab Cakes Ltd. has 5 million shares of stock outstanding selling at $15 per share and par value $1 per share. The company has an issue of $10 million in 10 percent, annual coupon bonds with a maturity of 25 years, selling at 97 percent of par ($1,000) . If Crab Cakes' weighted average tax rate is 21 percent, its next dividend is expected to be $1.00 per share, and all future dividends are expected to grow at 5 percent per year, indefinitely, what is its WACC?

• A) 8.42 percent
• B) 10.84 percent
• C) 11.27 percent
• D) 11.52 percent

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Definitions:

Excess Capacity

The amount by which current production capabilities exceed the current demand for a company's products or services.

Performance Evaluation

The process of assessing and reviewing an employee's or an organization's performance against predetermined objectives or criteria.

Bottom-line Profit

The net income or the final profit figure after all expenses, taxes, and costs have been subtracted from total revenues.

Net Realisable Value Method

An accounting technique used to value inventory or assets, determining the estimated selling price in the ordinary course of business minus any costs necessary to make the sale.