Wilson’s has 10,000 shares of common stock outstanding at a market pri

Wilson’s has 10,000 shares of common stock outstanding at a market price of $35 a share. The firm also has a bond issue outstanding with a total face value of $250,000 which is selling for 102 percent of face value.

The cost of equity is 11 percent while the pre-tax cost of debt is 8 percent. The firm has a beta of 1.1 and a tax rate of 34 percent. What is Wilson’s weighted average cost of capital?
A) 8.59 percent
B) 8.72 percent
C) 9.08 percent
D) 9.63 percent
E) 10.05 percent

ANSWER

A