The Following Information Is Available Concerning a Firm's Capital: Debt

question 153

Multiple Choice

The following information is available concerning a firm's capital: Debt : Bonds with a face value of $1000 and an initial 20-year term were issued five years ago with a coupon rate of 8% paying semiannually. Today these bonds are selling for $846.30.
Preferred stock : Preferred stock that pays an annual dividend of $9.50 is trading at $79.16.
Common equity : The stock is selling for $22.50 per share. An annual dividend of $1.70 was just paid and is expected to grow indefinitely at 6%.
Target capital structure : The firm's target capital structure is of 30% debt, 20% preferred stock, and 50% equity.
The firm can issue any type of security without paying floatation costs. The combined federal and state tax rate is 40%. Calculate the firm's WACC based on its target capital structure.

• A)9.4%
• B)11.2%
• C)8.2%
• D)12.4%

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