Ray Stokes Is Raising Capital for a New Company Called

question 91

Multiple Choice

Ray Stokes is raising capital for a new company called NO Balloons Inc.NO Balloons will manufacture and sell festive balloons.Because of the shortage of helium,the balloons will be filled with nitrous oxide instead.NO Balloons plans to finance the business with common equity and long-term debt.It plans to sell 12 million shares of common stock and 200,000 bonds.Each bond will have a coupon rate of 5% and will have a face value of $1,000.The common stock will be issued at a price of $19.5 a share.The bonds will sell for 89% of face value.The after-tax cost of debt is 4% and the cost of equity of 9.275%.What is NO Balloons' WACC?

• A) 5%
• B) 6%
• C) 7%
• D) 8%
• E) 9%

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Definitions:

Cross-sectional

A type of observational study that analyzes data from a population, or a representative subset, at a specific point in time.

Early Adolescence

A developmental stage referring to the period between childhood and adolescence, typically ages 10 to 14.

School Age

A stage in human development that typically refers to the period when children attend primary and secondary school, generally between the ages of 5 and 18.

Middle Adolescence

A developmental stage typically ranging from ages 14 to 17, characterized by increased independence, identity exploration, and emotional and social development.