QUESTION 8 Tru-Green has a cost of debt of 6.0%, a cost of equity of 11%, and a
ID: 1171924 • Letter: Q
Question
QUESTION 8
Tru-Green has a cost of debt of 6.0%, a cost of equity of 11%, and a cost of preferred stock of 7.5%. The firm has 250,000 shares of common stock outstanding at a market price of $42 a share. There are 5,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $600,000 and sells at 102% of face value. The tax rate is 25%. What is the weighted average cost of capital for Tru-Green?
11.32%
10.81%
10.59%
10.02%
9.63%
11.32%
10.81%
10.59%
10.02%
9.63%
Explanation / Answer
WACC=Respective costs*Respective weights
=(612000/11282000*4.5)+(10500000/11282000*11)+(170,000/11282000*7.5)
which is equal to
=10.59%(Approx).
Value Cost after tax Debt (600,000*102%)=$612000 6(1-0.25)=4.5% Equity (250000*42)=$10,500,000 11% Preferred stock (5000*34)=$170,000 7.5% Total=$11282000Related Questions
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