Jasper's, Inc. is expected to pay an annual dividend of $1.21 per share next year. This dividend is expected to increase by 3.5 percent annually. Jasper's also pays a 6 percent, annual coupon on its outstanding bonds. These bonds mature in 12.5 years and have a face value of $1,000. The firm's stock has a beta of 1.38 and a market price of $42.60 a share. The bonds are priced at $1,064 each. The market risk premium is 9.5 percent, the risk-free rate is 3.7 percent, and the tax rate is 32 percent. What is the firm's weighted average cost of capital if its debt-equity ratio is 0.36? A) 9.46 percent B) 9.58 percent C) 9.64 percent D) 9.69 percent

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Jasper's, Inc. is expected to pay an annual dividend of $1.21 per share next year. This dividend is expected to increase by 3.5 percent annually. Jasper's also pays a 6 percent, annual coupon on its outstanding bonds. These bonds mature in 12.5 years and have a face value of $1,000. The firm's stock has a beta of 1.38 and a market price of $42.60 a share. The bonds are priced at $1,064 each. The market risk premium is 9.5 percent, the risk-free rate is 3.7 percent, and the tax rate is 32 percent. What is the firm's weighted average cost of capital if its debt-equity ratio is 0.36?

  1. A) 9.46 percent
    B) 9.58 percent
    C) 9.64 percent
    D) 9.69 percent
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