An Analyst Has Obtained the Following Information About Maudite Brewers

question 25

Multiple Choice

An analyst has obtained the following information about Maudite Brewers Co.: Book value of assets $25,000; book value of common equity $10,000; book value of preferred shares $5,000.The company has 4,000 common shares outstanding which are currently trading at $5 per share.The company has 3,000 preferred shares outstanding which are currently trading at $2 per share.The yield on the debt equals the coupon rate.The weights used to determine the weighted average cost of capital are:
Common Equity: Preferred Equity: Debt:

• A) 55.56% 16.67% 27.77%
• B) 40% 20% 40%
• C) 80% 10% 10%
• D) Cannot be determined because we need the market value of debt.

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Definitions:

Negotiable Order of Withdrawal Accounts

Bank accounts that allow the depositor to write checks against the money deposited, acting similarly to checking accounts.

Money Market Accounts

Accounts that offer higher interest rates than standard bank rates but with greater restrictions.