Wright Express (WE) Has a Capital Structure of 30% Debt

question 4

Multiple Choice

Wright Express (WE) has a capital structure of 30% debt and 70% equity. WE is considering a project that requires an investment of $2.6 million. To finance this project, WE plans to issue 10-year bonds with a coupon interest rate of 12%. Each of these bonds has a $1,000 face value and will be sold to net WE $980. If the current risk-free rate is 7% and the expected market return is 14.5%, what is the weighted cost of capital for WE? Assume WE has a beta of 1.20 and a marginal tax rate of 40%.

• A) 14.9%
• B) 12.4%
• C) 13.4%
• D) 16.0%

Comprehend the process and requirements for a company going public, including the role of investment banks.

Understand regulatory aspects and the role of the Securities and Exchange Commission in the financial markets.

Grasp the importance of matching maturity of financing with the term of the project under the concept of maturity matching.

Solve simple radical equations.

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Definitions:

Termination Statement

A document filed to indicate that a previously filed security interest is no longer valid.

Filing

The process of submitting documents to a specified entity or office for official recording and recognition.

Amendment

A formal change or addition made to a document, law, or constitution.

Reasonable Expenses

Costs that are deemed necessary and appropriate under given circumstances, often in a legal or business context.