Daves IncRecently Hired You as a Consultant to Estimate the Company's

question 27

Multiple Choice

Daves Inc.recently hired you as a consultant to estimate the company's WACC.You have obtained the following information.(1) The firm's noncallable bonds mature in 20 years,have an 8.00% annual coupon,a par value of $1,000,and a market price of $1,050.00.(2) The company's tax rate is 40%.(3) The risk-free rate is 4.50%,the market risk premium is 5.50%,and the stock's beta is 1.20.(4) The target capital structure consists of 35% debt and the balance is common equity.The firm uses the CAPM to estimate the cost of equity,and it does not expect to issue any new common stock.What is its WACC?

• A)7.16%
• B)7.54%
• C)7.93%
• D)8.35%
• E)8.79%

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Definitions:

R&D Expenditures

Funds allocated by a government, corporation, or other entity towards research and development activities aimed at innovating and improving products or processes.

Interest-Rate Cost-Of-Funds

The expense associated with borrowing funds, often determined by the interest rate at which money is borrowed.

Expected-Rate-Of-Return

The anticipated percentage of profit or loss an investment is likely to generate.

Immediate Costs

Expenses that are directly incurred and need to be paid out in the short term.