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:

Homeostasis

The ability of an organism or environment to maintain stability in response to changes.

Self-actualization

A concept in psychology representing the realization or fulfillment of one's talents and potentialities, considered as a drive or need present in everyone.

Drive Theorists

Psychologists who suggest that behavior is motivated by the desire to reduce internal tension caused by unmet biological needs.

Homeostatic Mechanism

A process by which biological systems maintain stability and balance in response to external changes.