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Financial ManagementBUS5440 | Term: Spring 2 2015 Student Access: 3.9.2015 12:00 AM EDT - 5.3.2015 11:59 PM EDT | Section: 3QUESTION:1[QUESTION BANK ID:269613]TYPE:MULTIPLE CHOICECORRECTTo help finance a major expansion, Castro Chemical Company sold a noncallable bond several years agothat now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation? << HIDE ANSWERSA4.35%B4.58%C4.83%D5.08%E5.33%QUESTION:2[QUESTION BANK ID:269617]TYPE:MULTIPLE CHOICECORRECTDobson Dairies has a capital structure which consists of 60 % long-term debt and 40 % common stock. The company’s CFO has obtained the following information
The before-tax yield to maturity on the company’s bonds is 8 %The company’s common stock is expected to pay a $3.00 dividend at year end (D1= $3.00), and the dividend is expected to grow at a constant rate of 7 % a year. The common stock currently sells for $60 a shareAssume the firm will be able to use retained earnings to fund the equity portion of its capital budgetThe company’s tax rate is 40 %What is the company’s weighted average cost of capital (WACC)?