Company A has 150,000 bonds outstanding, each with a current market price of $980 (par value

= $1,000). The company also has 3,000,000 shares of common stock outstanding with a book value

of $20 / share and a current market price of $36 / share and. The companys management expects

the firms capital structure to stay the same in the future. What weights for debt and equity should

the company use to calculate the WACC?

Debt Equity

a. 52.65% 47.35%

b. 51.65% 48.35%

c. 55.65% 44.35%

d. 53.65% 46.35%

e. 57.65% 42.35%

Which of the following statements is most correct?

a. The weighted average cost of capital for a given capital budget level is a weighted average of the

marginal cost of each relevant capital component that makes up the firm's target capital structure.

b. An increase in the risk-free rate will have no impact on the marginal costs of both debt and equity

capital financing.

c. The weighted average cost of capital is calculated on a before-tax basis.

d. Statements a and c are correct.

e. All of the statements above are correct.