Question
1. Endrun Corporation has $1,000 par value bonds currently selling for $980. The bonds have a coupon rate of 10% and are paying interest semiannually.
1. Endrun Corporation has $1,000 par value bonds currently selling for $980. The bonds have a coupon rate of 10% and are paying interest semiannually. The bonds are due to reach maturity in 15 years. If Endrun's tax rate is 40%, what cost of debt should be used in arriving at the firm's weighted-average cost of capital?
A. 4.10% B. 6.16% C. 8.95% D. 10.26%
2. The following relates to Ajax Corporation:
Capital Structure:
40% Common equity 15% Preferred stock 45% Debt
Additional Information:
Corporate tax rate = 34% Preferred stock dividend = $8.50 Expected common share dividend = $2.50 Expected constant growth rate = 7.00% Bond coupon rate = 11.00% Bond yield = 9.50%
Price of preferred stock = $105.00 Price of common stock = $75.00
What is the weighted-average cost of capital for Ajax Corporation?
A. 6.24% B. 7.78% C. 8.17% D. 9.52%
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