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Choose the Correct Answer Questions 1 through 9 relate to the following problem: Daves Inc. recently hired you as a consultant to estimate the company's
Choose the Correct Answer Questions 1 through 9 relate to the following problem: Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information. The firm has $400,000 of debt outstanding, $200,000 of preferred stock, $300,000 of retained earnings and $300,000 of new common stock. The firm's bonds mature in 20 years and have a 10% yield to maturity. The company's tax rate is 40%. The firm's preferred stock currently sells for $80 a share and pays an annual dividend of $11. The firm 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 $52.50 a share. The issuance of new common stock would incur the firm 6% flotation cost. 1. The weight of debt is: * O A. $400,000 O B. 16.67% O C.33.33% O D. 25% O E. None of the above
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