Question: Suppose that a companys stock has a beta of 2.0. The risk-free rate is 3.0% and the expected return on the market is 10.5%. The

Suppose that a companys stock has a beta of 2.0. The risk-free rate is 3.0% and the expected return on the market is 10.5%. The market price of common stock is $12 and 30,000 shares are currently outstanding. The companys only other financing is a zero coupon bond with 1-year to maturity and a face value of 500,000. The bond is currently trading at 90% of par. If the corporate tax rate is 35%, what is the firms weighted average cost of capital to the nearest 1%? (A) 11% (B) 12% (C) 13% (D) None of the above

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