Question

You are given the following information for Watson Power Co. Assume the company's tax rate is 22 percent. Debt: 7,000 5.6 percent coupon bonds outstanding. $1,000 par value, 22 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Common stock: 400,000 shares outstanding, selling for $58 per share; the beta is 1.09. Preferred stock: 17,000 shares of 3.4 percent preferred stock outstanding, currently selling for $79 per share. The par value is $100 per share. Market: 6 percent market risk premium and 4.4 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC

Answer 1

fe -RATE(C1,C2,-С3,С4, C5) Сб A E Total No.of Payments 1 NPER 44 22 2 Payment per period Present Value Future value 28 1000*5.6%*1/2 2 PMT 1040 1000*104% 3 PV 4 FV 1000 Ending(0), Beginning(1) 5 TYPE 0 2.65% RATE(44,28,-1040,1000,0) 5.29% RATE(44,28,-1040, 1000,0) *2 6 RATE Rate Per Period Rate Per Period*2 7 YTM Per Annum 22% 8 Tax rate YTM*(1-Tax Rate) 4.13% After Tax Cost of debt 9 САРМ Кe 10 Rf+beta*(Rm-Rf) 0.044+1.09*0.06 11 Preference 12 Face value 100 3.4 100*3.4% 13 preference dividend 14 market price 0.1094 10.94% 79 3.4/79 15 Cost of preference shares 0.043037975 4.30% 16 weight Weight*Cost 0.009440 Market value 17 cost 7000*1000*104% 18 Debt 0.22877 4.13% 72,80,000.00 17000*79 19 preference 0.04220 4.30% 13,43,000.00 0.001816 400000*58 $2,32,00,000.00 20 Equity 0.72903 10.94% 0.079756 0.091012 21 3,18,23,000.00 22 23 9.10% 24 Wacc 25 L