Question

Addisons Equipment has 40,000 bonds outstanding that are selling at 103% of par. These bonds have a $1,000 face value. Bonds with similar characteristics are yielding 6 percent. The company also has 1.5 million shares of common stock outstanding. The common stock has a beta of 1.2 and sells for $53.31 a share. The U.S. Treasury bill is yielding 1 percent and the expected return on the market is 7 percent. The corporate tax rate is 40 percent. The WACC for Addisons is closest to:

13.07%

3.60%

7.45%

6.64%

12.98%

Answer 1