Addisons Equipment has 40,000 bonds outstanding that are selling at 103% of par. These bonds...
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Addisons Equipment has 40,000 bonds outstanding that are selling at 103% of par. These bonds have a $1,000 face value. Bonds with similar characteristics are yielding 6 percent. The company also has 1.5 million shares of common stock outstanding. The common stock has a beta of 1.2 and sells for $53.31 a share. The U.S. Treasury bill is yielding 1 percent and the expected return on the market is 7 percent. The corporate tax rate is 40 percent. The WACC for Addisons is closest to Robins Equipment, a firm with identical assets and operation to Addisons Equipment (from two questions above) if financed exclusively with equity. Robins Equipment has a beta of 1.10. The U.S. Treasury bill is yielding 1% percent and the expected return on the market is 7% percent. The corporate tax rate is 40 percent. The cost of capital (WACC) for Robins Equipment is higher than that of Addisons Equipment True False
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