Raymond Mining Corporation has 10.1 million shares of common stock outstanding, 450,000 shares of 5% $100 par value preferred stock outstanding, and 175,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $49 per share and has a beta of 1.55, the preferred stock currently sells for $98 per share, and the bonds have 15 years to maturity and sell for 116% of par. The market risk premium is 8.9%, T-bills are yielding 4%, and Raymond Mining’s tax is 38%. The YTM before taxes is 5.880%. What is the WACC? (Enter your answers in whole dollars. Omit % sign in your response.)
rate positively ..
Rate of equity = | |||||||||
Using CAPM rate of equity = Risk free rate + market risk premium * beta | |||||||||
=4%+8.9%*1.55 | |||||||||
17.795% | |||||||||
Rate of debt (after tax) | |||||||||
we have to use financial calculator to compute YTM | |||||||||
Put in calcualtor | |||||||||
PV | -1160 | ||||||||
FV | 1000 | ||||||||
PMT | 1000*7.5%/2 | 37.5 | |||||||
N | 30 | ||||||||
Compute I | 2.94% | ||||||||
YTM = | 5.88% | ||||||||
tax rate = | 38% | ||||||||
therefore rate of debt (after tax) = | 3.65% | ||||||||
rate of debt (after tax) = | 3.65% | ||||||||
rate of preferred stock = Annual dividend/Current price | |||||||||
=5/98 | |||||||||
5.10% | |||||||||
Working for rest of question | |||||||||
Computation of Weight and WACC | |||||||||
Market value | weight | Cost of capital | weight * cost | ||||||
Source | |||||||||
equity | 494900000 | =10.1mil*49 | 66.70% | 17.80% | 11.87% | ||||
debt | 203000000 | =175000*1000*116% | 27.36% | 3.65% | 1.00% | ||||
preferred stock | 44100000 | =450000*98 | 5.94% | 5.10% | 0.30% | ||||
742000000 | 13.17% | ||||||||
WACC= | 13% | ||||||||
Ans= | 13 |
Raymond Mining Corporation has 10.1 million shares of common stock outstanding, 450,000 shares of 5% $100...
Raymond Mining Corporation has 10.1 million shares of common stock outstanding, 450,000 shares of 5% $100 par value preferred stock outstanding, and 175,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $49 per share and has a beta of 1.55, the preferred stock currently sells for $98 per share, and the bonds have 15 years to maturity and sell for 116% of par. The market risk premium is 8.9%, T-bills are yielding 4%, and...
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Raymond Mining Corporation has 9.1 million shares of common stock outstanding, 350,000 shares of 4% $100 par value preferred stock outstanding, and 155,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $39 per share and has a beta of 1.55, the preferred stock currently sells for $95 per share, and the bonds have 10 years to maturity and sell for 110% of par. The market risk premium is 7.9%, T-bills are yielding 5%, and...
Raymond Mining Corporation has 8.7 million shares of common stock outstanding, 310,000 shares of 6% $100 par value preferred stock outstanding, and 147,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $91 per share, and the bonds have 20 years to maturity and sell for 116% of par. The market risk premium is 7.5%, T-bills are yielding 5%, and...
Raymond Mining Corporation has 8.7 million shares of common stock outstanding, 310,000 shares of 6% $100 par value preferred stock outstanding, and 147,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $91 per share, and the bonds have 20 years to maturity and sell for 116% of par. The market risk premium is 7.5%, T-bills are yielding 5%, and...
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Raymond Mining Corporation has 9.1 million shares of common stock outstanding, 350,000 shares of 4% $100 par value preferred stock outstanding, and 155,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $39 per share and has a beta of 1.55, the preferred stock currently sells for $95 per share, and the bonds have 10 years to maturity and sell for 110% of par. The market risk premium is 7.9%, T-bills are yielding 5%, and...
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