Question
Evergreen Mechanics has 250,000 shares of common stock outstanding at a market price of $30 a share and a market beta of 0.7. There are
Evergreen Mechanics has 250,000 shares of common stock outstanding at a market price of $30 a share and a market beta of 0.7. There are 60,000 shares of preferred stock outstanding at a market price of $40 a share; the cost of preferred stock is 9%. The outstanding bond issue of the company has a face value of $3,000,000 and a market price of $1,200. The maturity of the bonds is 10 years and coupon rate is 9%. Coupons are paid semi-annually. Market return is 14% and risk-free rate is 5%. The company's tax rate is 40 percent. What is the weighted average cost of capital of Evergreen Mechanics?
A. 10.83%
B. 9.12%
C. 9.55%
D. 8.88%
E. None of the above
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