Question

Unbelievable Deals Inc. has the following capital structure and marginal tax rate of 35%. What is...

Unbelievable Deals Inc. has the following capital structure and marginal tax rate of 35%. What is its WACC?

Debt:

  • 100,000 coupon bonds
  • Eight-year maturity
  • Face value of $1,000
  • Semi-annual coupon rate of 9%
  • Bond price of $1,075

Common shares:

  • Risk-free rate = 5%
  • Expected market risk premium = 7%
  • Beta = 1.2
  • Number of common shares = 3,000,000
  • Common share price = $30

Preferred shares:

  • Par value = $150
  • Dividends = $12
  • Share price = $95
  • Number of preferred shares = 100,000

Select one:

a. 7.14%

b. 8.80%

c. 9.01%

d. 10.39%

e. 11.56%

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