Western Electric has 30,000 shares of common stock outstanding at a price per share of $75 and a rate of return of 13.20 percent. The firm has 7,100 shares of 7.40 percent preferred stock outstanding at a price of $93.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $392,000 and currently sells for 109 percent of face. The yield to maturity on the debt is 7.96 percent. What is the firm's weighted average cost of capital if the tax rate is 25 percent? Multiple Choice 10.65% 10.85% 11.24%

Western Electric has 30,000 shares of common stock outstanding at a price per share of $75 and a rate of return of 13.20 percent. The firm has 7,100 shares of 7.40 percent preferred stock outstanding at a price of $93.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $392,000 and currently sells for 109 percent of face. The yield to maturity on the debt is 7.96 percent. What is the firm's weighted average cost of capital if the tax rate is 25 percent? Multiple Choice 10.65% 10.85% 11.24%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Western Electric has 30,000 shares of common stock outstanding at a price per share of $75 and a rate of return of 13.20 percent. The firm has 7,100
shares of 7.40 percent preferred stock outstanding at a price of $93.00 per share. The preferred stock has a par value of $100. The outstanding debt has
a total face value of $392,000 and currently sells for 109 percent of face. The yield to maturity on the debt is 7.96 percent. What is the firm's weighted
average cost of capital if the tax rate is 25 percent?
Multiple Choice
10.65%
10.85%
11.24%
11.49%
10.42%

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Western Electric has 34,000 shares of common stock outstanding at a price per share of $83 and a rate of return of 12.80 percent. The firm has 7,500 shares of 8.20 percent preferred stock outstanding at a price of $97.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $416,000 and currently sells for 113 percent of face. The yield to maturity on the debt is 8.20 percent. What is the firm's weighted average cost of capital if the tax rate is 40 percent?
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.26 %. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $55 million. The current stock price is $20 per share; stockholders' required return, rs, is 21.83 % ; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the idiot president thinks book weights are more appropriate. What is the difference between these two WACCS?
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $24.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.92% b. 2.28% c. 1.08% d. 1.68% e. 1.44%
Wayco Industrial Supply has a pretax cost of debt of 7.6%, a cost of equity of 16.8%, and a cost of preferred stock of 9.1%. The firm has 220,000 shares of common stock outstanding at a market price of $27 a share. There are 25,000 shares of preferred stock outstanding at a market price of $41 a share. The bond issue has a face value of $550,000 and a market quote of 101.2. The company's tax rate is 34%. What is the firm's weighted average cost of capital?
McCann Catching, Inc. has 3.00 million shares of stock outstanding. The stock currently sells for $12.79 per share. The firm's debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $19.00 million, and it is currently priced to yield 10.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.20. The corporate tax rate is 34.00%. The firm is considering a $45.89 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 7.00 years. What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)

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