A Firm Has 1,000,000 Shares of Common Stock Outstanding, Each

question 18

Multiple Choice

A firm has 1,000,000 shares of common stock outstanding, each with a market price of $10.00 per share. It has 15,000 bonds outstanding, each selling for $900 (with a face value of $1,000) . The bonds mature in 15 years, have a coupon rate of 10 percent, and pay coupons annually. The firm's equity has a beta of 1.5, and the expected market return is 20 percent. The tax rate is 21 percent and the WACC is 16 percent. What is the risk-free rate?

• A) 9.16 percent
• B) 11.4 percent
• C) 4.8 percent
• D) 16.0 percent

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Definitions:

Legitimate

being in accordance with established legal rules and standards.

Fundamental Reformulation

A comprehensive and profound change or restructuring of a concept, theory, or system.

Results

The outcomes or consequences of an action or process.

Bundling

Bundling is a strategy where multiple items or issues are combined into one package, often used in negotiations or sales to create more value.