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Problem:

Jack's Construction Co. has 100,000 bonds outstanding that are selling at par value. The bonds yield 8.6 percent. The company also has 3.1 million shares of common stock outstanding. The stock has a beta of 1.2 and sells for $25 a share. The U.S. Treasury bill is yielding 5 percent and the market risk premium is 8 percent. Jack's tax rate is 35 percent.

Required:

Question: What is Jack's weighted average cost of capital?

A) 9.52

B) 3.23

C) 11.45

D) 4.76

E) 6.37

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170186

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