Reference no: EM131115632

Use the following information for questions 29-33. A corporation has 8,000,000 shares of stock outstanding at a price of $50 per share. They just paid a dividend of $2 and the dividend is expected to grow by 7% per year forever. The stock has a beta of 1.2, the current risk free rate is 5%, and the market risk premium is 6%. The corporation also has 500,000 bonds outstanding with a price of $1,100 per bond. The bond has a coupon rate of 11% with semiannual interest payments, a face value of $1,000, and 13 years to go until maturity. However, it can be called in 6 years for a call premium of $1,050. The company plans on paying off their debt until they reach their target debt ratio of 40%. They expect their cost of debt to be 8% and their cost of equity to be 11% under this new capital structure. The tax rate is 40% 

What is the relevant yield on the company's debt? 

a) 9.2% 

b) 9.4% 

c) 9.6% 

d) 9.8%

What percent of their current market value capital structure is made up of debt?

a) 35% 

b) 42% 

c) 55% 

d) 58%

What is their WACC using their target capital structure and expected costs of debt and equity?

a) 7.7%

b) 8.5%

c) 9.1%

d) 9.8%