Assume JUP Has Debt with a Book Value of $20

question 57

Multiple Choice

Assume JUP has debt with a book value of $20 million, trading at 120% of par value. The bonds have a yield to maturity of 7%. The firm's book value of equity is $16 million, and it has 2 million shares trading at $19 per share. The firm's cost of equity is 12%. What is JUP's WACC if the firm's marginal tax rate is 35%?

• A) 10.03%
• B) 9.12%
• C) 9.57%
• D) 7.29%

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Definitions:

Familywise Error

Probability of making at least one Type I error across a set of comparisons.

Type I Errors

Mistakes made by falsely rejecting the null hypothesis when it is in fact true; also known as false positives.

Familywise Error

The overall likelihood that a Type I error (incorrect rejection of a true null hypothesis) will occur across a set of related hypotheses.

Type I Error

Error that occurs when the null hypothesis is true but the decision is made to reject the null hypothesis.