Question

Masterson, Inc., has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $130 million, has a coupon rate of 6 percent, and sells for 92 percent of par. The second issue has a face value of $115 million, has a coupon rate of 5 percent, and sells for 103 percent of par. The first issue matures in 24 years, the second in 10 years. Suppose the most recent dividend was $4.85 and the dividend growth rate is 5.2 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 22 percent. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC

Answer 1

6% Coupon nper pmt pv Cost of Equity (DO*(1+g)/PO)+g (4.85*(1+0.052)/81)+0.052 0.114990123 11.50% 48 24*2 30 1000*6%*1/2 -9201000*92% 1000 RATE(48,30,-920,1000) 3.34% 0.0667314 ytm ytm p.a After tax debt 0.0667314*(1-0.22) 0.052050 5.21% 6% Coupon 5% Coupon 130000000*92% 115000000*103% Market value Weight cost product 119600000 0.502415459 0.052050476 0.026150964 118450000 0.497584541 0.036051256 0.017938547 $ 238,050,000.00 0.044089511 5% Coupon nper pmt pv Debt Equity 2010*2 25 1000*5%*1/2 -1030 1000*103% 1000 RATE(20,25,-1030,1000) 2.31% 0.0462196 Market value weight cost product $ 238,050,000.00 0.246161005 0.044089511 0.010853118 $ 729,000,000.00 0.753838995 0.114990123| 0.086684039 $ 967,050,000.00 WACC 0.097537157 WACC 9.75% 9000000*81 ytm ytm p.a Wacc 9.75% After tax debt 10.04621*(1-0.22) 0.036051256 3.61%