15. A firm’s ordinary shares are trading for $40. The next dividend is $3.60 and is expected to grow by 2% in perpetuity. The firm has issued 10 year annual coupon bonds at a semi-annual yield of 4% pa and a coupon rate of 3% pa. The debt-to-equity ratio is 0.6:1. The corporate tax rate is 30%. What is the firm's after-tax WACC as an effective annual rate? Assume a classical tax system. a. 7.6250% b. 6.9140% c. 8.0000% d. 8.3900% e. 7.9355%
15. A firm’s ordinary shares are trading for $40. The next dividend is $3.60 and is expected to grow by 2% in perpetuity. The firm has issued 10 year annual coupon bonds at a semi-annual yield of 4% pa and a coupon rate of 3% pa. The debt-to-equity ratio is 0.6:1. The corporate tax rate is 30%. What is the firm's after-tax WACC as an effective annual rate? Assume a classical tax system. a. 7.6250% b. 6.9140% c. 8.0000% d. 8.3900% e. 7.9355%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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15. A firm’s ordinary shares are trading for $40. The next dividend is $3.60 and is expected to grow by 2% in perpetuity. The firm has issued 10 year annual coupon bonds at a semi-annual yield of 4% pa and a coupon rate of 3% pa. The debt-to-equity ratio is 0.6:1. The corporate tax rate is 30%. What is the firm's after-tax WACC as an effective annual rate? Assume a classical tax system.
a.
7.6250%
b.
6.9140%
c.
8.0000%
d.
8.3900%
e.
7.9355%
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