Given an Optimal Capital Structure That Is 50% Debt and 50

question 11

Multiple Choice

Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for the company given the following additional information:
$\begin{array}{lc}\text { Bond coupon rate } & 8 \% \\\text { Bond yield to maturity } & 5 \% \\\text { Dividend, expected } & \$ 5 \\\text { Price, common } & \$ 80 \\\text { Growth rate } & 5 \% \\\text { Corporate tax rate } & 21 \%\end{array}$

• A) Less than 6%.
• B) More than 6% and less than 7%.
• C) More than 7% and less than 8%.
• D) More than 8%.

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Definitions:

Rational Method

A systematic approach to problem-solving and decision-making that is based on logical reasoning and empirical evidence.

Factor Analysis

A statistical technique for finding clusters of related traits, tests, or items.

Empirical Method

A way of gaining knowledge by means of direct observation or experience, relying on evidence that is observable and measurable.

Scale Construction

A method used in research for assigning numerical values to variables, allowing for quantitative analysis of traits, attitudes, and behaviors.