Alpha Products Maintains a Capital Structure of 40% Debt and 60

question 5

Multiple Choice

Alpha Products maintains a capital structure of 40% debt and 60% common equity. To finance its capital budget for next year, the firm will sell $50 million of 11% debentures at par and finance the balance of its $125 million capital budget with retained earnings. Next year Alpha expects net income to grow 7% to $140 million, and dividends also are expected to increase 7% to $1.40 per share and to continue growing at that rate for the foreseeable future. The current market value of Alpha's stock is $30. If the firm has a marginal tax rate of 40%, what is its weighted cost of capital for the coming year?

• A) 9.64%
• B) 8.63%
• C) 9.84%
• D) 11.67%

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Definitions:

Beta Rhythms

A pattern of brain wave activity with a frequency of approximately 13 to 30 Hz that is associated with active thinking, focus, and concentration.

Delta Rhythms

Slow, high-amplitude brainwaves present in deep sleep, meditative states, and under certain pathological conditions, reflecting the deepest levels of relaxation and restorative processes in sleep.

Genetic Contribution

Genetic contribution refers to the influence that an individual's genes have on the development of traits or diseases.

Rhythmicity

The quality or state of being rhythmic; the regular recurrence of actions or processes in time.