Peter's Audio Has a Yield to Maturity on Its Debt

question 58

Multiple Choice

Peter's Audio has a yield to maturity on its debt of 7.8 percent,a cost of equity of 12.4 percent,and a cost of preferred stock of 8 percent.The firm has 105 shares of common stock outstanding at a market price of $22 a share.There are 25 shares of preferred stock outstanding at a market price of $45 a share.The bond issue has a total face value of $1,500 and sells at 98 percent of face value.If the tax rate is 21 percent,what is the weighted average cost of capital assuming all interest is tax deductible?

• A)9.68 percent
• B)8.54 percent
• C)8.69 percent
• D)9.52 percent
• E)9.45 percent

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Definitions:

Containment Policy

A United States foreign policy during the Cold War aimed at preventing the spread of communism by providing economic and military support to countries threatened by communist insurgency.

Truman Doctrine

A policy set forth by U.S. President Harry S. Truman in 1947, supporting countries that rejected communism, marking the start of the Cold War era.

American Foreign Policy

The strategic approach and actions taken by the United States in its relations with other countries, including diplomacy, military actions, and treaties.

Gamal Abdul Nasser

An Egyptian military officer and statesman who served as the second President of Egypt from 1954 until his death in 1970, known for his nationalist policies and his key role in the pan-Arab movement.