A Firm Has 10,000,000shares of Common Stock Outstanding, Each with a Market

question 52

Essay

A firm has 10,000,000shares of common stock outstanding, each with a market price of $15.00 per share.It has 80,000 bonds outstanding, each selling for $1020.The bonds mature in 15 years, have a coupon rate of 9%, and pay coupons semi-annually.The firm's equity has a beta of 1.9, and the expected market return is 10%.The tax rate is 30% and the WACC is 12%.Calculate the risk free rate.

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Definitions:

Monocline

A geological fold in which all layers are inclined in the same direction, forming a step-like structure in the stratigraphy.

Sedimentary Rock

Rock formed by the deposition and subsequent cementation of mineral or organic particles on the floor of oceans or other bodies of water at the Earth's surface.

Metamorphic Equivalent

The rock type that results when another type of rock is subjected to metamorphism under specific conditions.

Quartzite

A hard, metamorphic rock formed from sandstone through heating and pressure, known for its durability and use in construction.