Question

Ten Pins Manufacturing has 7.9 million shares of common stock outstanding. The current share price is $49, and the book value per share is $3. The company also has two bond issues outstanding. The first bond issue has a face value of $69.2 million and a coupon rate of 6.6 percent and sells for 108.7 percent of par. The second issue has a face value of $59.2 million and a coupon rate of 7.1 percent and sells for 108.1 percent of par. The first issue matures in 7 years, the second in 28 years. The company's stock has a beta of 1.2. The risk-free rate is 2.7 percent, and the market risk premium is 6.6 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

| 0 = = = = = 3 g W ? v . ** 02:00 ENG 08-02-2020 33 X 1246 D E F G H I J K L - FOR YTM BOND 1 BOND 2 251 252 A B C 245 246 financial 247 calculator strokes 248 first of all 249 C/Y = 250 PAY = then N = 253 PV = 254 PMT= 255 FV = CPT 1/4 = 257 COST OF DEBT = 258 259 CALCULATION OF COST OF DEBT 260 261 BOND 1 263 BOND 2 14 [7 X2] 1087 [108.7% X 1000] -33 (100 X 6.6%/2] -1000 5.11% 56 (28 X2] 1081 [108.1% X 1000] -35.5 (100 X 7.1%/2] -1000 6.47% 6.47% 256 5.11% book value PRICE 262 69.2 59.2 128.4 108.70% 108.10% MV C=A*B 75.2204 63.9952 139.2156 WEIGHTS WEIGHTED COST D*E 0.5403 5.11% 2.76% 0.4597 6.47% 2.97% WEIGHTED COST OF DEBT = 5.73% 264 265 266 AFTER TAX COST OF DEBT = 5.73%*(1-0.34) = 3.78% ... BOND PV FV Sheet4 choice EAR nper WACC Sheet1 Sheet2 Sheet3 Sheet5 HERO WACC AFN manual MIS ... T :

| 0 = = = = = 3 g W ? v 1 . * ENG 02:01 08-02-2020 33 G286 B C D E F G H I J K L 267 268 cost of equity beta = 1.20, Rf =2.7%, Rm-Rf= 6.6% 269 270 271 272 273 274 ke = ke = ke = Rf + beta (Rm-Rf) 2.7% + 1.20*6.6%) 10.62% 275 wacc source based on market value market value 276 weights 277 coc (%) weighted cost B*C 10.62% 7.81% 278 387.10 0.7355 common stock [7.9 X 49] 279 280 debt 0.2645 3.78% 1.00% 139.2156 526.3156 281 282 WACC 8.81% 283 see first image ANSWER WACC 8.81% 284 285 286 287 288 ... BOND PV FV Sheet4 choice EAR nper WACC Sheet1 Sheet2 Sheet3 Sheet5 HERO WACC AFN manual MIS ... :