Assume JUP Has Debt with a Book Value of $20

question 28

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 6%.The firm has book equity of $20 million,and 2 million shares trading at $18 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)9.60%
• B)8.76%
• C)9.00%
• D)6.24%

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Definitions:

Cash Payback Period

The time period required for an investment to generate cash flows to recover the initial investment cost.

Capital Investment

Funds invested in a business with the expectation of future returns, often in the form of physical assets or capital expenditures.

Recovery

The process of regaining possession or control of something stolen or lost, or the process of returning to a normal state of health, mind, or strength.

Average Rate

A value derived by dividing the sum of several rates by the number of rates, often used in financial calculations.