An Analyst Has Collected the Following Information Regarding Christopher Co

question 23

Multiple Choice

An analyst has collected the following information regarding Christopher Co.: • The company's capital structure is 70 percent equity, 30 percent debt.
• The yield to maturity on the company's bonds is 9 percent.
• The company's year-end dividend is forecasted to be $0.80 a share.
• The company expects that its dividend will grow at a constant rate of 9 percent a year.
• The company's stock price is $25.
• The company's tax rate is 40 percent.
• The company anticipates that it will need to raise new common stock this year. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's WACC.

• A) 10.41%
• B) 12.56%
• C) 10.78%
• D) 13.55%
• E) 9.29%

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Definitions:

Prior Service Cost

The expense recognized in pension accounting when a plan is amended to increase benefits for service provided by employees in prior years.

Ending Balance

The amount of money in an account at the end of a financial period, after all transactions have been accounted for.

Plan Assets

The resources set aside to pay employee benefits under a pension or other post-employment benefit plan.

Fair Value

Rephrased: An accounting concept referring to the estimated price at which an asset could be bought or sold in a current transaction between willing parties.