1. Hotel Cortez is an all-equity firm that has 6,400 shares of stock outstanding at a market price of $17 per share. The firm's management has decided to issue $36,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 9 percent. What is the break-even EBIT?
$11,475
$8,393
$10,200
$9,792
$10,608
2. Room and Board is considering two capital structures that have a break-even EBIT of $21,600. The all-equity capital structure would have 14,800 shares outstanding. The levered capital structure would have 10,900 shares of stock and $81,000 of debt. What is the interest rate on the debt? Ignore taxes.
7.36%
8.03%
7.03%
6.68%
6.30%
3. Charlotte's Crochet Shoppe has 11,300 shares of common stock outstanding at a price per share of $65 and a rate of return of 11.21 percent. The company also has 340 bonds outstanding, with a par value of $1,000 per bond. The pretax cost of debt is 5.93 percent and the bonds sell for 94.2 percent of par. What is the firm's WACC if the tax rate is 39 percent?
8.60%
8.44%
8.90%
9.61%
10.02%