Charlotte's Crochet Shoppe has 14,300 shares of common stock outstanding at a price per share of $75 and a rate of return of 11.61 percent. The company also has 280 bonds outstanding, with a par value of $2,000 per bond. The pretax cost of debt is 6.13 percent and the bonds sell for 97.2 percent of par. What is the firm's WACC if the tax rate is 40 percent?

the firm's WACC is 8.94%

Explanation:

WACC shows the risk of the company. It is the minimum return that a project must offer before it can be accepted.

WACC Calculation

Capital Source         Market Value        Weight            Cost                 Total

Common stock           $1,072,500          66.33%           11.61%                7.70%

Debt                               $544,320          33.67%          3.68%                 1.24%

Total                             $1,616,820          100.00%                                   8.94%

Common stock

Market Value = 14,300×$75

                       =  $1,072,500

Debt

Market Value = 280 ×($2,000×97.2%)

                       =  $544,320

Cost = Market Interest×(1-tax rate)

        = 6.13 % × (1-0.40)

        = 3.68%

answer; /// that is so (false);

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.