Use the information below and a 35% tax rate to calculate the WACC. Common Stock Bonds...
Use the information below and a 35% tax rate to calculate the
WACC.
| Common Stock | Bonds | |
| Units Outstanding | 50,000 | 800 |
| Market Price | $14 | $950 |
| Cost | 14% | 7% |
Please show written work and formula/s used, thank you :)
Homework Answers
WACC = Weight of debt * Cost of debt * (1 - tax) + Weight of common equity * Cost of common equity
Value of debt = 800 * $950 = $760,000
Value of Equity = 50,000 * $14 = $700,000
Weight of debt = $760,000/($760,000 + $700,000) = 0.5205
Weight of equity = $700,000/($760,000 + $700,000) = 0.4795
WACC = 0.5205 * 7% * (1 - 35%) + 0.4795 * 14% = 9.08%
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Use the information below and a 35% tax rate to calculate the
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