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

question 121

Multiple Choice

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 $1,100 with a $1,000 face value. The bonds mature in 12 years, have a coupon rate of 9 percent, and pay coupons semiannually. The firm's equity has a beta of 1.4, and the expected market return is 15 percent. The tax rate is 35 percent and the WACC is 14 percent. Calculate the risk-free rate.

• A)2.05 percent
• B)15.27 percent
• C)20.18 percent
• D)1.19 percent

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Definitions:

Republican Coalition

A political alliance within the United States Republican Party, bringing together various factions and interests groups within the party.

Southern Extremists

Individuals or groups in the southern United States who hold radical views, often associated with aggressive advocacy for certain ideologies or resistance to change.

Secession

The act of withdrawing from an affiliation, union, or federation, notably as practiced by Southern states leading to the American Civil War when they left the Union to preserve slavery and states' rights.

Compromise

A settlement of differences by mutual concessions or reciprocal modification of demands.