Question

Teddy Corp. has 10,000 bonds outstanding with a 6% annual coupon rate, 8 years to maturity, a 1,000 face value, and a 1,100 market price.

b) Teddy Corp. 100,000 shares of preferred stock pay an annual dividend of 3, and currently sell for 30 per share.

c) Teddy Corp. 500,000 shares of common stock currently sell for 25 per share. The stock has a beta of 1.5. The risk free rate is 4%, and the market return is 12%.

Assuming a 40% tax rate, what is the company’s WACC?

Answer 1

Cost of Equity | r = rf+ B*(rm - ri) rf, Risk-Free Rrate: 4.00% |rnmr Market Return: | 12.00% B, Beta of Security: 1.50 আর Amount of Equity No. of Shares Price Value, E = 500000 25 12500000 re, Expected Return = cost of equity, Ke 16.00% 6.000 Amount of Debt No. of bonds Price Value, D = 10000 1100 11000000 Cost of Debt Coupon Rate Years to maturity Current market price Par Value Coupan Payment Current Market interest Rate, kd -1100] 1000 4.48%| 3.০০ Cost of preferred stock Annual Dividend Current Price Cost of preferred stock, Kp Amount of preferred stock No. of Shares Price 100000 30 10.00% Value, PS = Total Value = A= 3000000 26500000 A * K WACC =E/A * K + D Tc, Corporate Tax Rate: * (1-T) + Ps| A * Kp 40.00% WACC, Weighted Avg. Cost of Capital = 9.80%