Consider Higgins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semiannual payments 0 Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. The WACC of the company is: Oa. 6.23% O b. 8.8% O c. 6.57% You are analyzing the leverage of two firms and you noted the following (all values in millions of dollars) Firm A Firm B Debt 65 60 Book Equity 75 40 Market Equity 80 50 Operating Income O b. Both firms are equal in providing adequate interest coverage. 45 Which firm will be in a better position to provide a better interest cover? O c. Firm B will be better because its interest cover ratio is lower than that of firm A O d. Firm A will better because its coverage ratio is 2.2 22 a. Firm A is better because it coverage ratio is higher (3.75) compared to firm B n You are analyzing the leverage of two firms and you noted the following (all values in millions of dollars) Firm A Firm B Debt 65 60 Book Equity O c. 75 40 Market Equity 80 50 O b. Both firms are equal in providing adequate interest coverage. Operating Income Which firm will be in a better position to provide a better interest cover? Firm B will be better because its interest cover ratio is lower than that of firm A O d. Firm A will better because its coverage ratio is 2.2 45 O a. Firm A is better because it coverage ratio is higher (3.75) compared to firm B 22