Use the Data Provided on Cadbury to Answer the Question

question 25

Multiple Choice

Use the data provided on Cadbury to answer the question below.The risk free rate is 4.25%.The expected return on the market portfolio is 9.75%.The corporate tax rate is 40%.The face value of Cadbury's outstanding bonds is 2.450 billion pounds sterling.The coupon rate on Cadbury's bonds is 4.5%.Assume that the bonds pay annual coupons.The yield to maturity on Cadbury's bonds is 4.5%.Cadbury's bonds mature in 7 years.Cadbury has 1.650 billion common shares outstanding.The market price of Cadbury's common shares as of Dec 31,2008 is 6.25 pounds sterling.Cadbury's Beta is 0.8.Cadbury's cost of debt (after-tax) is 2.7%.Cadbury's cost of equity is 8.65%.What is Cadbury's WACC?

• A) 6.37%
• B) 7.51%
• C) 7.76%
• D) 8.02%
• E) 8.16%

---

Definitions:

Marginal Utility

The additional satisfaction or benefit (utility) a consumer gains from consuming one more unit of a good or service.

Hot Dogs

A cooked sausage, traditionally grilled or steamed and served in a sliced bun as a sandwich.

French Fries

Strips of potatoes that are deep fried until crisp and are often served as a side dish or snack.

Honda Valkyrie Rune

A specific model of a large, luxury cruiser motorcycle produced by Honda, known for its unique design and powerful engine.