Which of the following statements is (are) correct? (x) Widgets, Inc. has preferred stock selling for...

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Finance

Which of the following statements is (are) correct?
(x) Widgets, Inc. has preferred stock selling for 102.5 percent ofpar that pays a 5.75 percent annual coupon. The component cost ofpreferred stock for Widgets, Inc. is 5.61 percent.
(y) ABC Company stock has a beta of 0.9, the current risk-free rateis 3.2, and the expected return on the market is 12.5 percent. Thecost of equity for ABC is more than 11.45 percent.
(z) When determining the appropriate weights used in calculating aWACC, it should reflect the relative sizes of the total bookcapitalizations for each kind of security that the firmissues.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only
WBX Inc. has a $10 million (face value), 10-year bond issueselling for 98.45 percent of par that pays a coupon rate of 8.24percent. Coupons are paid semi-annually. What would be WBX'sbefore-tax component cost of debt?
A. 8.08% B. 8.16% C. 8.24% D. 8.43%
E. more than 8.43%
XCW, Inc. has a $15 million ($1000 face value) 15-year bondissue selling for 106.0 percent of par that carries a coupon rateof 8.0%, paid semi-annually. What is the firm’s before-taxcomponent cost of debt?
A. 3.67% B. 4.06% C. 7.09%
D. 7.34% E. 8.12%

Answer & Explanation Solved by verified expert

4.2 Ratings (605 Votes)

1B x and y onlyX Cost of Preferred Stock Dividend Market Value 575 10250 561 CorrectY Cost of See Answer

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Which of the following statements is (are) correct?(x) Widgets, Inc. has preferred stock selling for 102.5 percent ofpar that pays a 5.75 percent annual coupon. The component cost ofpreferred stock for Widgets, Inc. is 5.61 percent.(y) ABC Company stock has a beta of 0.9, the current risk-free rateis 3.2, and the expected return on the market is 12.5 percent. Thecost of equity for ABC is more than 11.45 percent.(z) When determining the appropriate weights used in calculating aWACC, it should reflect the relative sizes of the total bookcapitalizations for each kind of security that the firmissues.A. (x), (y) and (z)B. (x) and (y) onlyC. (x) and (z) onlyD. (y) and (z) onlyE. (x) onlyWBX Inc. has a $10 million (face value), 10-year bond issueselling for 98.45 percent of par that pays a coupon rate of 8.24percent. Coupons are paid semi-annually. What would be WBX'sbefore-tax component cost of debt?A. 8.08% B. 8.16% C. 8.24% D. 8.43%E. more than 8.43%XCW, Inc. has a $15 million ($1000 face value) 15-year bondissue selling for 106.0 percent of par that carries a coupon rateof 8.0%, paid semi-annually. What is the firm’s before-taxcomponent cost of debt?A. 3.67% B. 4.06% C. 7.09%D. 7.34% E. 8.12%