Question

You are looking at the following information:

  

Debt:		5,000 6.5 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.
Common stock:		105,000 shares outstanding, selling for $64 per share; the beta is 1.14.
Preferred stock:		14,500 shares of 5.5 percent preferred stock (review my Ch.8 slide 43: what does "...% preferred stock" phrase mean?) outstanding, currently selling for $104 per share.
Market:		8 percent market risk premium and 5 percent risk-free rate.

  

The company is in the 35 percent tax rate bracket based on its corporate income.

  

Required:

  

Find the WACC. (Do not round your intermediate calculations.)

Answer 1

. : X for =+C8/$C$17 C D E WACC (Cost %*Weights) 7.09% Cost% 7 8 Common equity Market value Weights 14.12% $ 6,720,000 0.5023 =5%+1.14*8% =105000*64 0.3850 1.56% 10 11 Debt 12 13 14 Preferred stock 15 4.05% $ =RATE(20*2,65/2,-1030,1000,0)*2*(1-35%)] 5,150,000 =5000* 1030 $ 0.1127 0.60% 5.29% =5.5/104 1,508,000 =14500*104 Total $ 13,378,000 1.00 19 Weighted average cost of capital (WACC) 9.25%

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