Question

Please show how to solve PRETAX COST OF DEBT using the YIELD FORMULA. That is the only thing I need. thank you

Task 2: Weighted Average Cost of Capital (WACC) 01/01/00 01/21/00 50.000 8.5% 1.000 20 1.040 1 Input 2 Debt 3 Settlement date 4 Maturity date 5 Bonds outstanding 6 Annual coupon rate 7 Face value (5) 8 Coupons per year 0 Years to maturity 10 Bond price ($) 11 Common stock 12 Shares outstanding 13 Beta 14 Share price (5) 15 Preferred stock 16 Shares outstanding 17 Coupon rate 18 Share price (5) 19 Market 20 Market risk premium 21 Risk free rate 22 Tax rate You are given the following information for Twitter, Inc. Assume the company's tax rate is 21% Debt: 50,000 bonds outstanding with 8.5% coupon rate, $1,000 par value, 20 years to maturity, selling for 51040, the bonds make semiannual payments. Common stock: 700,000 shares outstanding selling for $52 per share the beta is 0.90 Preferred stock 140,000 shares of 6% preferred stock, currently selling for $35 per share. Market: 8% market risk premium and 2% risk-free rate Questions 700,000 0.90 52 140,000 6.09 3. What is the company's after tax cost of debt? (s point) 4 What is the company's cost of common stock? (5 point) 5. What is the company's cost of preferred stock? (5 point) 6. What is the company's WACC? (5 point) 8.09 2016 21.096

Answer 1

After tax cost of debt Yield*(1-Tax rate) 0.085*(1-0.35) 0.05525 5.53% Ке 100 Preference Face value preference dividend Market price Cost of preference shares Rf+Beta*(Rm-Rf) 0.02+0.90*(0.08) 0.092 9.20% Coupon nper pmt 35 Cost of Equity PV (6/35) 0.1714 17.14% 40 20*2 42.50 1000*8.5%*1/2 (1,040.00) 1000 RATE(40,42.50,-1040,1000) 4.047% 4.047%*2 8.093% Pretax cost of Debt 8.093% YTM Debt preference Equity 50000*1040 140000*35 700000*52 Market value Market value weight cost $ 52,000,000.00 0.5573 $ 4,900,000.00 0.0525 $ 36,400,000.00 0.3901 $ 93,300,000.00 WACC WACC After tax cost of debt 0.08093*(1-0.21) #VALUE! 6.393% product 0.0639 0.0356 0.1714 0.0090 0.0920 0.0359 0.0805 8.05%