An Analyst Has Obtained the Following Information About Maudite Brewers $\bullet$

question 2

Multiple Choice

An analyst has obtained the following information about Maudite Brewers Co.:
$\bullet$ Book value of assets $25,000
$\bullet$ Book value of common equity $10,000, with 4,000 shares outstanding, currently trading at $5 per share
$\bullet$ Book value of preferred shares $5,000, with 3,000 preferred shares outstanding which are currently trading at $2 per share.
$\bullet$ The yield on the debt equals the coupon rate.
The weights used to determine the weighted average cost of capital are:
Common Equity: Preferred Equity: Debt:

• A)55.56% 16.67% 27.77%
• B)40% 20% 40%
• C)80% 10% 10%
• D)Cannot be determined because we need the market value of debt.

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Definitions:

Utility

A measure in economics of the satisfaction or benefit derived by consuming a product or service.

Total Utility

The total satisfaction or benefit derived by consuming a product or service; it increases as more units are consumed, up to a certain point.

Satisfaction

A measure of how products or services meet or surpass customer expectations.

Consumption

The use of goods and services by households or individuals, typically as it contributes to economic measures like GDP.