Assume That You Are an Intern with the Brayton Company

question 38

Multiple Choice

Assume that you are an intern with the Brayton Company, and you have collected the following data: The yield on the company's outstanding bonds is 7.75%; its tax rate is 25%; the next expected dividend is $0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price of the stock is $15.00 per share; the flotation cost for selling new shares is F = 10%; and the target capital structure is 45% debt and 55% common equity.What is the firm's WACC, assuming it must issue new stock to finance its capital budget?

• A) 7.34%
• B) 7.73%
• C) 8.14%
• D) 8.56%
• E) 8.99%

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Definitions:

Designer Jeans

High-end jeans often made by or branded by leading fashion designers, characterized by unique designs, high-quality materials, and a higher price.

Transnational Corporations

Are large businesses with head offices in rich countries. They rely increasingly on foreign labour and foreign production; skills and advances in design, technology, and management; world markets; and massive advertising campaigns. They are increasingly autonomous from national governments.

Nation-states

Political entities consisting of a sovereign state whose citizens or subjects are relatively homogeneous in factors such as language or common descent.

Autonomous

The quality of having independence or self-governance, capable of making decisions or operating independently from external control.