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20. Company X currently has a capital structure that consists of 40% equity, 20% preferred equity, and 40% of debt. The risk-free rate is 3%
20. Company X currently has a capital structure that consists of 40% equity, 20% preferred equity, and 40% of debt. The risk-free rate is 3% and the market risk premium is 8%. The company's equity beta is 1.1. The dividend yield for the preferred equity is 6%. The corporate tax rate is 21%, and the cost of borrowing for company X is 5%. What is the WACC for company X? a. 0.065 b. 0.075 c. 0.079 d. 0.088 e. 0.092 21. Which statement below about the relationship between discount rate, WACC, and required rate of return is correct? a. At the firm level, the discount rate for a typical project is WACC. b. At the firm level, the WACC is the same as the required rate of return for equity. c. Higher corporate tax rate increases WACC. d. For a project with much higher risk than the firm itself, the discount rate is WACC
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