Indie Inc. recently hired you as a consultant to estimate the company's WACC. You get the following information. (1) Indie Inc. non-callable bonds matures in 25 years, has an 8.00% annual coupon, a face value of $1,000, and a market price of $1,075.00. (2) The corporate tax rate is 40%. (3) The risk-free rate of return is 4.50%, the market risk premium is 5.50%, and the beta of the stock is 1.20. (4) The target capital structure consists of 35% debt and the rest is common stock. Indie Inc. uses the CAPM to estimate the cost of equity, and will not issue new common stock. How much is WACC worth? a. 7.13% b. 7.51% c. 7.90% d. 8.32% e. 8.76%
Indie Inc. recently hired you as a consultant to estimate the company's WACC. You get the following information. (1) Indie Inc. non-callable bonds matures in 25 years, has an 8.00% annual coupon, a face value of $1,000, and a market price of $1,075.00. (2) The corporate tax rate is 40%. (3) The risk-free rate of return is 4.50%, the market risk premium is 5.50%, and the beta of the stock is 1.20. (4) The target capital structure consists of 35% debt and the rest is common stock. Indie Inc. uses the CAPM to estimate the cost of equity, and will not issue new common stock. How much is WACC worth? a. 7.13% b. 7.51% c. 7.90% d. 8.32% e. 8.76%
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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Question
Indie Inc. recently hired you as a consultant to estimate the company's WACC. You get the following information.
(1) Indie Inc. non-callable bonds matures in 25 years, has an 8.00% annual coupon, a face value of $1,000, and a market price of $1,075.00.
(2) The corporate tax rate is 40%.
(3) The risk-free rate of return is 4.50%, the market risk premium is 5.50%, and the beta of the stock is 1.20.
(4) The target capital structure consists of 35% debt and the rest is common stock. Indie Inc. uses the CAPM to estimate the cost of equity , and will not issue new common stock.
How much is WACC worth?
a. 7.13%
b. 7.51%
c. 7.90%
d. 8.32%
e. 8.76%
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