A Firm Has 5,000,000 Shares of Common Stock Outstanding, Each

question 125

Essay

A firm has 5,000,000 shares of common stock outstanding, each with a market price of $8.00 per share.It has 25,000 bonds outstanding, each selling for $800.The bonds mature in 10 years, have a coupon rate of 8%, and pay coupons semi-annually.The firm's equity has a beta of 1.4, and the expected market return is 15%.The tax rate is 35% and the WACC is 15%.Calculate the risk free rate.

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Definitions:

Gametes

Mature haploid male or female germ cells which are able to unite with another of the opposite sex in sexual reproduction to form a zygote.

Sporophyte Generation

The 2n, spore-producing stage in the life cycle of a plant. Compare with gametophyte generation.

Liverworts

A phylum of spore-producing, nonvascular, thallose or leafy plants with a life cycle similar to that of mosses.

Club Mosses

A phylum of seedless vascular plants with a life cycle similar to that of ferns.