Estimate the Company's WACC, Marshall Increcently Hired You as a Consultant

question 52

Multiple Choice

estimate the company's WACC, Marshall Increcently hired you as a consultant 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 common stock, and it does not expect to issue any new shares What is its WACC?

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

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Definitions:

Rational Expectations

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An American economist and Nobel Prize winner known for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy.

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