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

question 27

Multiple Choice

A firm has 5,000,000 shares of common stock outstanding, each with a market price of $10.00 per share. It has 55,000 bonds outstanding, each selling for $990 with a $1,000 face value. The bonds mature in 15 years, have a coupon rate of 8 percent, and pay coupons semiannually. The firm's equity has a beta of 2.0, and the expected market return is 15 percent. The tax rate is 35 percent and the WACC is 16 percent. Calculate the risk-free rate.

• A)27.68 percent
• B)1.79 percent
• C)2.32 percent
• D)2.12 percent

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Definitions:

Alcohol

An organic compound characterized by one or more hydroxyl (–OH) groups attached to a carbon atom, used in a wide array of applications from solvents to beverages.

IR Spectroscopy

A technique used to identify molecular structures through the absorption of infrared light, which causes molecular vibrations.

Compounds

Substances formed from the chemical combination of two or more elements, characterized by specific molecular compositions and properties.

C=O Stretch

A vibrational mode in infrared spectroscopy, indicating the presence of a carbonyl group (\(C=O\)) in the molecule, characterized by a strong, distinctive absorption band.