Initech Has 7 Million Shares of Common Stock Outstanding and 50,000

question 80

Multiple Choice

Initech has 7 million shares of common stock outstanding and 50,000 bonds outstanding.The bonds pay semi-annual coupons at an annual rate of 9.05%,have 6 years to maturity and a face value of $1,000 each.The common stock currently sells for $30 a share and has a beta of 1.The bonds sell for 94% of face value and have a 10.42% yield to maturity.The market risk premium is 5.5%,T-bills are yielding 5% and the tax rate is 30%.What is the firm's capital structure weight for debt?

• A) 18.3%
• B) 19.3%
• C) 20.3%
• D) 21.3%
• E) 22.3%

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Definitions:

Mass Customization

A strategy that allows for the production of goods and services to meet individual customer needs with near mass production efficiency.

Additional Features

Extra functions or services included with a product or service that provide additional value or convenience to the customer.

Build-To-Order

A manufacturing process where products are created only after receiving a customer's order, allowing for customization.

Manufacturing

The process of producing goods using raw materials, machinery, and labor.