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Question: Kenny Electric Company's noncallable bondswere issued several years ago and now have 20 years to...

Kenny Electric Company's noncallable bonds were issued severalyears ago and now have 20 years to maturity. These bonds have a9.25% annual coupon, paid semiannually, sells at a price of $1,075,and has a par value of $1,000. If the firm's tax rate is 40%, whatis the component cost of debt for use in the WACC calculation?

a. 4.58%

b. 4.35%

c. 4.83%

d. 5.33%

e. 5.08%

Perpetual preferred stock from Franklin Inc. sells for $97.50per share, and it pays an $8.50 annual dividend. If the companywere to sell a new preferred issue, it would incur a flotation costof 4.00% of the price paid by investors. What is the company's costof preferred stock for use in calculating the WACC?

a. 8.72%

b. 10.22%

c. 9.08%

d. 9.44%

e. 9.82%

When working with the CAPM, which of the following factors canbe determined with the most precision?

a. The beta coefficient, bi, of a relatively safestock.

b. The most appropriate risk-free rate, rRF.

c. The market risk premium (RPM).

d. The beta coefficient of "the market," which is the same asthe beta of an average stock.

e. The expected rate of return on the market,rM.

Bartlett Company's target capital structure is 40% debt, 15%preferred, and 45% common equity. The after-tax cost of debt is6.00%, the cost of preferred is 7.50%, and the cost of common usingreinvested earnings is 12.75%. The firm will not be issuing any newstock. You were hired as a consultant to help determine their costof capital. What is its WACC?

a. 9.54%

b. 8.98%

c. 9.26%

d. 10.12%

e. 9.83%

Avery Corporation's target capital structure is 35% debt, 10%preferred, and 55% common equity. The interest rate on new debt is6.50%, the yield on the preferred is 6.00%, the cost of common fromreinvested earnings is 11.25%, and the tax rate is 40%. The firmwill not be issuing any new common stock. What is Avery's WACC?

a. 9.17%

b. 9.54%

c. 8.82%

d. 8.48%

e. 8.15%