Great Corporation has the following capital situation. Debt: One thousand bonds

Question

Great Corporation has the following capital situation.
Debt: One thousand bonds were issued five years ago at a coupon rate of 8%. They had 25-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 36%
Preferred stock: Two thousand shares of preferred are outstanding, each of which pays an annual dividend of $7.50. They originally sold to yield 15% of their $50 face value. They're now selling to yield 8%.
Equity: Great Corp has 125,000 shares of common stock outstanding, currently selling at $14.48 per share. Dividend expected for next year is $1.00 and the growth rate is 5%

Explanation / Answer

Debt:
Price= 80PVIFA(9%,20)+1000PVIF(9%,20)= $908.714
value of bond= 1000x908.714=$908714

Prefered stock:

Price= 7.50/.08= $93.75

value of Prefered stock= 2000x93.75= $187500

Equity:
14.48= 1/Ke-.05
Ke= 11.91%
value of shares= 125000x14.48= $1810000

908714+187500+1810000= $2906214

WACC= [908714/2906214x9x(1-.36)]+[187500/2906214x8 ]+[1810000/2906214x11.91]
= 1.80+.516+7.42

=9.74%

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