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

question 33

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 firm's market value of debt and equity respectively?

• A) 22,500,000; 6,750,000
• B) 2,020,000; 22,500,000
• C) 4,750,000; 15,750,000
• D) 9,642,857; 15,750,000
• E) 9,642,857; 22,500,000

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Definitions:

Body Temperature

The measure of the body's ability to generate and get rid of heat, critical for maintaining metabolic processes in homeothermic species.

Appetite

The natural desire to satisfy a bodily need, especially for food.

Fat Metabolism

The biochemical process involving the breakdown and synthesis of fats in the body for energy production and storage.

Central Nervous System

The part of the nervous system consisting of the brain and the spinal cord that processes information and directs activity.