Question

Anson Jackson Court Company (AJC) The Anson Jackson Court Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00. Refer to the data for the Anson Jackson Court Company (AJC). What is AJC's current total market value and weighted average cost of capital? a. $800,000; 7.0% b. $600,000; 7.5% c. $800,000; 8.0% d. $600,000; 8.0%

Answer 1

total market value = $800,000

WACC= 7.5%

Step-by-step explanation:

stockholders' equity = $60 x 10,000 = $600,000

total market value = total stockholders' equity + long term liabilities = $600,000 + $200,000 = $800,000

weighted average cost of capital (WACC) = ($600,000/$800,000 x 0.088) + [$200,000/$800,000 x 6% x (1 - 40%)] = 0.066 + 0.009 = 0.075 = 7.5%