A Firm Has a Capital Structure That Uses 45% Equity

question 17

Multiple Choice

A firm has a capital structure that uses 45% equity, 20% preferred shares, and 35% debt.The preferred shares have a current yield of 5.5%.The debt has a coupon rate of 10% and a current yield to maturity of 6.5%.The common shares have a yield of 8%.Ignoring income taxes, what is the firm's WACC?

• A)6.575%
• B)6.975%
• C)7.275%
• D)8.200%

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Definitions:

Organizational Functions

The various roles, tasks, and responsibilities within an organization that are essential for its operation and achievement of its objectives.

Organizational Synergy

The increased efficiency or performance resulting from two or more entities working together within an organization.

Task Segmentation

The breaking down of a job or project into smaller, more manageable components or units for easier completion.

Tiffany/Walmart Strategy

A comparison of two distinct business models: Tiffany's high-end, luxury market positioning versus Walmart's focus on economies of scale, cost leadership, and broad market appeal.