Question

1. Conseco Inc. has the outstanding bonds maturing in 17 years and the bonds have a total face value of $750,000, a face value per bond of $1,000, and a market price of $1,011 each. The bonds pay 8 percent interest, semiannually. Also, the firm has 58,000 shares of common stock outstanding at a market price of $36 a share. The common stock just paid a $1.64 annual dividend and has a dividend growth rate of 2.8 percent. There are 12,000 shares of 6 percent preferred stock outstanding at a market price of $51 a share. The preferred stock has a par value of $100. The tax rate is 34 percent. What is the firm's weighted average cost of capital? Show all your work.

A. 7.74%

B. 8.95%

C. 9.19%

D. 10.68%

E. 12.43%

Answer 1

Using Excel, enter the below formula in any cell

=(750000*1011/1000*RATE(17*2,8%*1000/2,-1011,1000)*2*(1-34%)+12000*51*6%*100/51+58000*36*(1.64*1.028/36+2.8%))/(750000*1011/1000+12000*51+58000*36)

=7.74%