Question
IBM has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 13.70%. The firm has
IBM has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 13.70%. The firm has 6,000 shares of 7% preferred stock outstanding at a price of $48 a share. The firm also has 350 outstanding bonds with a face value of $1,000 and currently sells for 102% of face. The yield to maturity on the debt is 6.40%. What is the firm's weighted average cost of capital if the tax rate is 34%?
IBM has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 13.70%. The firm has 6,000 shares of 7% preferred stock outstanding at a price of $48 a share. The firm also has 350 outstanding bonds with a face value of $1,000 and currently sells for 102% of face. The yield to maturity on the debt is 6.40%. What is the firm's weighted average cost of capital if the tax rate is 34%?
a. 9.95%
b. 11.50%
c. 10.98%
d. 10.40%
e. 10.54%
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