Granite Works Maintains a Debt-Equity Ratio of 0

question 97

Multiple Choice

Granite Works maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent.The firm does not issue preferred stock.The pre-tax cost of debt is 9.8 percent.There are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of $19 a share.The current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent.This year,the firm paid an annual dividend of $1.10 a share and expects to increase that amount by 2 percent each year.Using an average expected cost of equity,what is the weighted average cost of capital?

• A)8.44 percent
• B)8.78 percent
• C)8.96 percent
• D)9.13 percent
• E)9.20 percent

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Definitions:

Personality Functioning

Aspects of an individual's personality that influence their patterns of thought, feeling, and behavior in daily life.

Carl Jung

A Swiss psychiatrist and psychoanalyst who founded analytical psychology, known for concepts such as the collective unconscious and archetypes.

Individualism

A societal ideology that elevates the principle of personal freedom over the authority of groups or state mechanisms.

Birth Year

The year in which a person was born.