4.

Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁ = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $87.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 25%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings? Do not round your intermediate calculations.

a. 7.21%

b. 7.13%

c. 6.85%

d. 5.98%

e. 6.99%

5.

Assume that you are considering the purchase of a 15-year, noncallable bond with an annual coupon rate of 10.1%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require a 12.9% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

a. $788.64

b. $867.94

c. $490.07

d. $858.98

e. $816.23

6.

Grossnickle Corporation issued 20-year, noncallable, 7.9% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.8%. What is the current price of the bonds, given that they now have 19 years to maturity?

a. $1,289.96

b. $1,238.03

c. $1,251.26

d. $1,244.83

e. $1,298.25