Assume Time Warner Shares Have a Market Capitalization of $65

question 22

Multiple Choice

Assume Time Warner shares have a market capitalization of $65 billion. The company just paid a dividend of $0.40 per share and each share trades for $25. The growth rate in dividends is expected to be 7.00% per year. Also, Time Warner has $10 billion of debt that trades with a yield to maturity of 7%. If the firm's tax rate is 40%, compute the WACC?

• A) 7.70%
• B) 8.11%
• C) 8.92%
• D) 9.33%

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Definitions:

Per Unit Basis

A method of quantifying costs, revenues, or other financial metrics on the basis of a single unit of production or service.

Activity

A specific task or action that is part of a process or contributes to the completion of a project.

Variable Costs

Expenditures that fluctuate directly in relation to the amount of goods or services produced.

Relevant Range

The relevant range is a level of activity within which assumptions about variable and fixed cost behaviors are valid, used for budgeting and forecasting.