Question
Acme Services CFO is considering whether to take on a new project that has average risk. She has collected the following information: The company has
Acme Services CFO is considering whether to take on a new project that has average risk. She has collected the following information: The company has outstanding bonds that mature in 26 years. The bonds have a face value of $1,000, an annual coupon of 7.5%, and sell in the market today for $920. There are 10,000 bonds outstanding. The risk-free rate is 6%. The market risk premium is 5%. The stocks beta is 1.2. The companys tax rate is 40%. The company has 50,000 shares of preferred stock with a par value of $100. These shares are currently trading at $105, and pay an annual dividend of $5.40. The company also has 1,850,000 common shares trading at $25. These shares last paid an annual dividend of $0.93. What is Acme's weight of debt? A. 4.39% B. 54.65% C. 4.93% D. 45.13% E. 15.16%
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