Daves IncRecently Hired You as a Consultant to Estimate the Company's

question 5

Multiple Choice

Daves Inc.recently hired you as a consultant to estimate the company's WACC.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 $1,225.00.(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 equity,and it does not expect to issue any new common stock.What is its WACC? Do not round your intermediate calculations.

• A) 8.48%
• B) 10.01%
• C) 7.80%
• D) 6.79%
• E) 7.63%

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Definitions:

Intercompany Sales

The internal sale of products or services between related entities within the same corporate structure, aiming to streamline operations and optimize resources.

Effective Tax Rate

The average percentage of their total income that individuals or corporations actually pay in taxes.

Consolidated Statement

Financial reports that aggregate the financial position, results of operations, and cash flows of a parent company and its subsidiaries into one document.

Acquisition Differential

The difference between the fair value of an acquired company's identifiable net assets and the actual cost to purchase that company.