Question 6

Consider the following balance sheet of a publicly held company: Cash $760,000 Long Term Debt $7,633,500 Receivables $1,250,000 Common Stocks $14,176,500 Inventories $2,225,000 Net Equipment $17,575,000 It is estimated that the yield to maturity on bonds are 9%. The company faces a marginal tax rate of 28%. Assume that stock price of this company rises such that it would sell at 1.35 times its book value (amount in the balance sheet) causing its cost of equity to move to 11.5%. What would be the weighted average cost of capital for this firm?

		10.07%
		9.31%
		9.91%
		8.41%

Question 7

Consider the following balance sheet of a publicly held company: Cash $760,000 Long Term Debt $7,633,500 Receivables $1,250,000 Common Stocks $14,176,500 Inventories $2,225,000 Net Equipment $17,575,000 Currently the stocks are selling for a price equal to its book value and bonds are selling at par. It is estimated that the stockholders require a return of 13% while the yield to maturity on bonds are 9%. The company faces a marginal tax rate of 34%. What is the weighted average cost of capital for this firm?

		7.95%
		10.53%
		8.41%
		9.31%