Jake's Sound Systems Has 210,000 Shares of Common Stock Outstanding

question 246

Multiple Choice

Jake's Sound Systems has 210,000 shares of common stock outstanding at a market price of $36 a share. Last month, Jake's paid an annual dividend in the amount of $1.593 per share. The dividend growth rate is 4 %. Jake's also has 6,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 7 % coupon, pay interest annually, and mature in 4.89 years. The bonds are selling at 99 % of face value. The company's tax rate is 34 %. What is Jake's weighted average cost of capital?

• A) 5.3 %
• B) 5.8 %
• C) 6.3 %
• D) 6.9 %
• E) 7.2 %

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Definitions:

Master Budget

An aggregated budget that represents a company's overall plan of action for a specified period, integrating individual budgets for income, spending, and capital expenditures.

Master Budget

A comprehensive financial planning document that consolidates all of an organization's individual budgets.

Sales Budget

A financial plan detail outlining projected sales for a specific period, guiding marketing and production strategies.

Capital Expenditures Budget

A financial plan detailing a company's projected spending on fixed assets such as buildings and equipment.