Pan American Airlines' Shares Are Currently Trading at $69

question 67

Multiple Choice

Pan American Airlines' shares are currently trading at $69.25 each.The yield on Pan Am's debt is 4% and the firm's beta is 0.7.The T-Bill rate is 4% and the expected return on the market (E (k_M) ) is 9%.Pan American Airlines pays a combined federal and state tax rate of 35%.The company's target capital structure is 25% debt and 75% equity.Pan Am's cost of debt is 2.6% and the company's cost of equity is 7.5%.What is the weighted average cost of capital for Pan Am?

• A) 2.6%
• B) 4.3%
• C) 5.3%
• D) 6.3%
• E) 7.5%

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Definitions:

Sieve Elements

Specialized cells located in the phloem of vascular plants, responsible for assisting in the movement of sugars and nutrients.

Vessel Members

Specialized cells that form part of the xylem vessels in plants, involved in the transport of water and nutrients.

Lignin

Material that strengthens cell walls of vascular plants.

Stomata

Small openings on the surfaces of plant leaves and stems that facilitate gas exchange.