Used in arriving at firm weighted-average cost of capital

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Reference no: EM131577420

1. Endrun Corporation has $1,000 par value bonds currently selling for $980. The bonds have a coupon rate of 10% and are paying interest semiannually. The bonds are due to reach maturity in 15 years. If Endrun's tax rate is 40%, what cost of debt should be used in arriving at the firm's weighted-average cost of capital?

A. 4.10%

B. 6.16%

C. 8.95%

D. 10.26%

2. The following relates to Ajax Corporation:

Capital Structure:

40% Common equity

15% Preferred stock

45% Debt

Additional Information:

Corporate tax rate = 34%

Preferred stock dividend = $8.50

Expected common share dividend = $2.50

Expected constant growth rate = 7.00%

Bond coupon rate = 11.00%

Bond yield = 9.50%

Price of preferred stock = $105.00

Price of common stock = $75.00

What is the weighted-average cost of capital for Ajax Corporation?

A. 6.24%

B. 7.78%

C. 8.17%

D. 9.52%

Reference no: EM131577420

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