The Flying Dove has 1,600 bonds outstanding with a $1,000 par value,a coupon rate of 5.5 percent,12 years to maturity,annual interest payments,and a market price equal to par.The firm also has 52,000 shares of common stock outstanding at a price per share of $43 and a beta of 1.3.The risk-free rate is 3 percent,the market risk premium is 7 percent,and the tax rate is 35 percent.What is the company's WACC?

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The correct answer is A.The WACC is calculated as follows:WACC = (E/V) * Re + (D/V) * Rd * (1 - Tc)where:E = market value of equityV = total value of the firmRe = cost of equityD = market value of debtRd = cost of debtTc = tax rateIn this case, we have:E = 52,000 * $43 = $2,224,000V = E + D = $2,224,000 + $1,600,000 * $1,000 = $3,824,000Re = 3% + 1.3 * 7% = 12.1%D = $1,600,000 * $1,000 = $1,600,000Rd = 5.5%Tc = 35%Therefore, the WACC is:WACC = (2,224,000/3,824,000) * 12.1% + (1,600,000/3,824,000) * 5.5% * (1 - 0.35) = 8.54%

The Flying Dove Has 1,600 Bonds Outstanding with a $1,000