A Firm Has 1,000,000 Shares of Common Stock Outstanding, Each

question 26

Multiple Choice

A firm has 1,000,000 shares of common stock outstanding, each with a market price of $10.00 per share. It has 15,000 bonds outstanding, each selling for $900 (with a face value of $1,000) . The bonds mature in 15 years, have a coupon rate of 10 percent, and pay coupons semiannually. The firm's equity has a beta of 1.5, and the expected market return is 20 percent. The tax rate is 35 percent and the WACC is 16 percent. What is the risk-free rate?

• A)4.8 percent
• B)11.4 percent
• C)27.6 percent
• D)30.0 percent

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Definitions:

MO Energy Diagram

A graphical representation of the molecular orbital energies, showing the bonding and antibonding interactions in molecules.

π Electrons

Electrons found in pi bonds (π bonds), which contribute to the bonding between atoms in molecules, playing a crucial role in chemical reactions and molecular stability.

Molar Heat

The amount of heat energy required to raise the temperature of one mole of a substance by one degree Celsius.

P Orbitals

Atomic orbitals described by quantum mechanics having a dumbbell shape and oriented along the x, y, and z axes, involved in forming pi bonds.