Malitz Inc

question 13

Multiple Choice

Malitz Inc.recently hired you as a consultant to estimate the company's WACC.You have obtained the following information.- Malitz's noncallable bonds mature in 25 years,have an 8.00% annual coupon,a par value of $1,000,and a market price of $1,075.00.- The company's tax rate is 40%.- The risk-free rate is 4.50%,the market risk premium is 5.50%,and the stock's beta is 1.20.- The target capital structure consists of 35% debt and the balance as common equity.Malitz uses the CAPM to estimate the cost of equity,and it does not expect to issue any new common stock.What is its WACC?

• A)7.51%
• B)7.90%
• C)8.32%
• D)8.76%

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Definitions:

Instrumentality

The perceived relationship between performance and the attainment of desired outcomes or rewards.

Word Processing

The use of computer software to enter, edit, format, and output text.

Expectancy Model

A psychological theory stating that an individual’s motivation is based on the expectation of desired outcomes and the value they place on those outcomes.

Errors

Mistakes or inaccuracies in actions, calculations, or judgments.