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A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 each. It has 2,000 bonds

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A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 each. It has 2,000 bonds outstanding, each with a market value of $1,200 (120 percent of face). The bonds mature in 15 years, have a coupon rate of 10 percent, and pay coupons annually. The firm's beta is 1.2, the risk free rate is 5 percent, and the market risk premium is 7 percent. The tax rate is 34 percent. Compute the WACC.
a) 5.42 percent
b) 6.53 percent
c) 9.36 percent
d) 10.28 percent

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...

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d 10 28 percent Market value of Equity 2 000 000 2 00 4 000 000 Market value of Debt 2 000 1 20…View the full answer


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Corporate Finance

Corporate Finance

ISBN: 9781260772388

13th Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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Question Posted: February 08, 2013 02:03:34
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