A fiRm Uses 55% Equity and 45% Debt for All

question 182

Multiple Choice

A firm uses 55% equity and 45% debt for all of its financing needs. Shares of the common stock sell at $43. The company expects to pay $1.30 in dividends next year and increase that amount by 3%
Annually. The bonds have a 7% coupon rate and a yield-to-maturity of 6.8%. The company has a
Beta of 1.39 and a 34% marginal tax rate. What is the WACC?

• A) 5.33%
• B) 5.48%
• C) 5.88%
• D) 6.03%
• E) 6.37%

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Definitions:

Compound

A compound created through the chemical bonding of two or more elements.

IUPAC Name

The systematic name for a chemical substance as designated by the International Union of Pure and Applied Chemistry, used to ensure consistency and clarity.

Compound

A material composed of atoms from at least two distinct elements that are chemically combined.

Polycaprolactone

A biodegradable polymer with the chemical formula (C6H10O2)n used in making polyurethane, adhesives, and biomedical devices.