You are given the following information concerning Parrothead Enterprises: 9,700

Question

You are given the following information concerning Parrothead Enterprises:

9,700 7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 105.75. These bonds pay interest semiannually.

260,000 shares of common stock selling for $65.20 per share. The stock has a beta of .92 and will pay a dividend of $3.40 next year. The dividend is expected to grow by 5.2 percent per year indefinitely.

Debt:

9,700 7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 105.75. These bonds pay interest semiannually.

Common stock:

260,000 shares of common stock selling for $65.20 per share. The stock has a beta of .92 and will pay a dividend of $3.40 next year. The dividend is expected to grow by 5.2 percent per year indefinitely.

Preferred stock: 8,700 shares of 4.6 percent preferred stock selling at $94.70 per share. Market: A 11.3 percent expected return, a risk-free rate of 5.2 percent, and a 30 percent tax rate.


CALCULATE THE WACC%

Explanation / Answer

Value of debt=9700*105.75 1025775 Cost of Debt=((1.036^2-1)*100)(1-0.30) 5.131 Common Stock Value=260000*65.20 16952000 Cost of common Stock=5.2+0.92*(11.3-5.2) 10.812 Preferred stock value=8700*94.70 823890 Cost of preferred stock 4.6 WACC=(1025775*5.131+16952000*10.812+823890*4.6)/(1025775+16952000+823890) 10.230

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