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1-A Consider the following information for Watson Power Co.: Debt: 5,000 9 percent coupon bonds outstanding, $1,000 par value, 23 years to maturity, selling for
1-A
Consider the following information for Watson Power Co.: |
Debt: | 5,000 9 percent coupon bonds outstanding, $1,000 par value, 23 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. | ||
Common stock: | 105,000 shares outstanding, selling for $63 per share; the beta is 1.07. | ||
Preferred stock: | 14,500 shares of 8 percent preferred stock outstanding, currently selling for $106 per share. | ||
Market: | 11 percent market risk premium and 7.5 percent risk-free rate. | ||
Assume the company's tax rate is 31 percent. |
Find the WACC. |
Multiple Choice
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13.18%
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13.82%
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12.68%
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12.92%
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12.78%
1-B
Fama's Llamas has a weighted average cost of capital of 12 percent. The company's cost of equity is 18 percent, and its pretax cost of debt is 8 percent. The tax rate is 32 percent. What is the company's target debt-equity ratio? |
Multiple Choice
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0.8689
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0.9512
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1.5
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0.9604
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0.9146
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