The Current Market Rate of Return Is 12% and the Risk-Free

question 15

Multiple Choice

The current market rate of return is 12% and the risk-free rate is 4%. You have been given the job of determining your firm's cost of capital components. The company has 1 million shares outstanding with a current value of $22.50 per share. The debt represents 30% of the capital structure and the yield to maturity is 12%. The b of the equity is 1.4 and the tax rate if 30%. What is the market value of firm and the debt respectively?

• A) 22,500,000; 6,750,000
• B) 32,142,857; 9,642,857
• C) 32,142,857; 22,500,000
• D) 15,750,000; 9,642,857
• E) 9,642,857; 22,500,000

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