Assume JUP has debt with a book value of $20 million, trading at 120% of par value. The bonds have a yield to maturity of 7%. The firm's book value of equity is $16 million, and it has 2 million shares trading at $19 per share. The firm's cost of equity is 12%. What is JUP's WACC if the firm's marginal tax rate is 35%?
A) 10.03%
B) 9.12%
C) 9.57%
D) 7.29%

Question

Quizplus · Accepted Answer

B) Market value debt = $20 million × 120% = $24 million
Market value equity = 2 million × $19 = $38 million
Total market value = $62 million
D% = $24 / $62 = 38.7096774%
E% = $38 / $62 = 61.2903226% 11ea84dc_f529_f391_9a63_5538e01904c5_TB1316_00_TB1316_00

Assume JUP Has Debt with a Book Value of $20