Trumpit Resorts Company currently has 1.2 million common shares of stock out- standing and the stock...

 

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Trumpit Resorts Company currently has 1.2 million common shares of stock out- standing and the stock has a beta of 2.2. It also has $10 million face value of bonds that have five years remaining to maturity and 8% coupon with semiannual payments, and are priced to yield 13.65%. If Trumpit issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65%; if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16%. Trumpit has learned that it can issue new common stock at $10 a share. The current risk-free rate of interest is 3% and the expected market return is 10%. Trumpit's marginal tax rate is 30%. If Trumpit raises $7.5 million of new capital while maintaining the same debt-to-equity ratio, its weighted average cost of capital is closest to: A. 14.5%. B. 15.5%. C. 16.5%. Trumpit Resorts Company currently has 1.2 million common shares of stock out- standing and the stock has a beta of 2.2. It also has $10 million face value of bonds that have five years remaining to maturity and 8% coupon with semiannual payments, and are priced to yield 13.65%. If Trumpit issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65%; if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16%. Trumpit has learned that it can issue new common stock at $10 a share. The current risk-free rate of interest is 3% and the expected market return is 10%. Trumpit's marginal tax rate is 30%. If Trumpit raises $7.5 million of new capital while maintaining the same debt-to-equity ratio, its weighted average cost of capital is closest to: A. 14.5%. B. 15.5%. C. 16.5%.

Answer rating: 100% (QA)

Current market value Equity Equity Number of share market price 12 10 12 million Bond Face ... View the full answer