Bay State Technology Has Determined That Its Cost of Equity

question 31

Multiple Choice

Bay State Technology has determined that its cost of equity is 15% and its after-tax cost of debt is 7.2%. Bay State expects to earn $14 million after taxes next year and, as a new firm, does not pay any dividends. The stock sells for $24. Bonds are currently selling at par value. Compute Bay State's weighted cost of capital. A partial balance sheet is shown below: $$\begin{array} { l r } \text { Current liabilities } & \$ 300,000 \\\text { Long-term debt } & \$ 1,000,000 \\\text { Common stock at } \$ 1 \text { par } & \$ 100,000 \\\text { Paid in capital } & \$ 900,000 \\\text { Retained earnings } & \$ 3,000,000 \\\text { Total liabilities and stockholders' equity } & \$ 5,300,000\end{array}$$

• A) 13.4%
• B) 13.1%
• C) 11.6%
• D) 12.7%

---

Definitions:

Text

Characters or strings of characters representing words, sentences, or any written content.

Document Window

The document window is the main workspace in a software application where the content of the current document is displayed and edited.

Misspelled Words

Words that are not spelled correctly according to the dictionary or standard spelling rules of a language.

Punctuation Mark

Symbols used in writing to clarify meaning and indicate pauses or divisions in text, such as periods, commas, and question marks.