Question
Rekall Inc., the memory implant company, has 7 million shares of common stock outstanding and 100,000 semiminusannual bonds. The bonds have 6 years to maturity,
Rekall Inc., the memory implant company, has 7 million shares of common stock outstanding and 100,000 semiminusannual bonds. The bonds have 6 years to maturity, a 9.05% coupon rate and a face value of $1,000 each. The common stock currently sells for $29.94 and just paid a dividend of $2.50. Dividends are paid annually and are expected to grow in perpetuity at 3%. The bonds sell for 94% of face value and have a 10.42% yield to maturity. The afterminustax cost of debt is 7.294%, and the cost of equity is 11.6%. What is Rekall's WACC? A. 11.24% B. 9.51% C. 9.94% D. 7.09% E. 10.27%
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