Sound Systems has 200 shares of common stock outstanding at a market price of $37 a...

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Sound Systems has 200 shares of common stock outstanding at amarket price of $37 a share. The firm recently paid an annualdividend in the amount of $1.20 per share and has a dividend growthrate of 4 percent. The firm also has 5 bonds outstanding with aface value of $1,000 per bond that are selling at 99 percent ofpar. The bonds have a coupon rate of 6 percent and a yield tomaturity of 6.7 percent. All interest is tax deductible. If the taxrate is 21 percent, what is the weighted average cost ofcapital?
1. 5.93
2. 6.87
3. 6.37
4. 6.54

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4.4 Ratings (713 Votes)

Market Value of Capital Structure Market Value of Debt 4950 5 Bonds x 1000 x 99 Market Value of Equity 7400 200 Shares x 37 per share Total Market Value See Answer

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Sound Systems has 200 shares of common stock outstanding at amarket price of $37 a share. The firm recently paid an annualdividend in the amount of $1.20 per share and has a dividend growthrate of 4 percent. The firm also has 5 bonds outstanding with aface value of $1,000 per bond that are selling at 99 percent ofpar. The bonds have a coupon rate of 6 percent and a yield tomaturity of 6.7 percent. All interest is tax deductible. If the taxrate is 21 percent, what is the weighted average cost ofcapital?1. 5.932. 6.873. 6.374. 6.54