A Firm Has a Capital Structure of 40% Debt and 60

question 93

Multiple Choice

A firm has a capital structure of 40% debt and 60% equity.The firm has bonds outstanding with a face value of $20 million.The bonds pay,on average,a 8% annual coupon and have an average maturity length of 7 years.The market value of the bonds is 110% of face value and the tax rate facing the firm is 40%.The firm has common stock with a beta of 1.25.The risk free rate on Treasury bonds is 2%,while the market risk premium is 8%.What is the WACC for the firm?

• A) 8.69%
• B) 9.13%
• C) 9.68%
• D) 11.15%

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