A Firm Has 5,000,000 Shares of Common Stock Outstanding, Each

question 91

Multiple Choice

A firm has 5,000,000 shares of common stock outstanding, each with a market price of $10.00 per share. It has 55,000 bonds outstanding, each selling for $990 with a $1,000 face value. The bonds mature in 15 years, have a coupon rate of 8 percent, and pay coupons semiannually. The firm's equity has a beta of 2.0, and the expected market return is 15 percent. The tax rate is 21 percent and the WACC is 16 percent. Calculate the risk-free rate.

• A) 27.68 percent
• B) 1.79 percent
• C) 3.56 percent
• D) 2.12 percent

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Definitions:

Meiosis

Meiosis is a type of cell division that reduces the chromosome number by half, resulting in four daughter cells, each with a unique set of chromosomes; it is essential for sexual reproduction.

Zygote

The initial cell formed when a sperm cell fertilizes an egg cell, representing the earliest stage of development in many organisms.

Chromosome Number

The total number of chromosomes present in the cell of an organism, which is characteristic of each species.

Gamete

A fully developed single-set chromosome male or female reproductive cell capable of merging with its counterpart from the opposite gender to produce a zygote through sexual reproduction.