The A J Croft Company (AJC) Currently Has $200,000 Market Value (And

question 41

Multiple Choice

The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.
-What is AJC's current total market value and weighted average cost of capital?

• A) $600,000; 7.5%
• B) $600,000; 8.0%
• C) $800,000; 7.0%
• D) $800,000; 7.5%
• E) $800,000; 8.0%

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Definitions:

UCC

A comprehensive set of laws governing commercial transactions in the United States, intended to harmonize the law of sales and other commercial transactions across jurisdictions.

Consideration

A fundamental concept in contract law that involves something of value exchanged between parties, serving as the reason or motive for entering into a contract.

Security Interest

is a legal claim on collateral that has been pledged, usually to obtain a loan, that gives a creditor the right to repossession if the debtor defaults.

Vested

A legal term indicating that an individual has an absolute right to an asset, benefit, or property, which cannot be taken away without consent.