really help needed You are given the following information for Lightning Power C
ID: 2654313 • Letter: R
Question
really help needed
You are given the following information for Lightning Power Co. Assume the company?s tax rate is 38 percent. Debt: 7,000 6.8 percent coupon bonds outstanding, $1000 par value, 30 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Common stock: 400,000 shares outstanding, selling for $58 per share; the beta is 1.14. Preferred stock: 18,000 shares of 5 percent preferred stock outstanding, currently selling for $78 per share. Market: 7 percent market risk premium and 4.80 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) WACC %Explanation / Answer
Answer:
Debt - 7.0 mil pays 6.8%, or 476,000 less 38% on a market value of 7.0 x 1.04, or 7.28 mil. Net cost 295120 / 7.28 mil. = 4.05%
Common - Per CAPM: R = 4.8 + 1.14 (7%) = 12.78%
Preferred - 18,000 shs at 100 par, or 1800,000 pays 5%, or 90,000 on market value of 1404,000.
WACC -
Debt of 7.28 mil costs 4.05%, or 295120
Common at market value of 23200,000 costs 12.78%, or 2964960
Preferred at 1,404,000 costs 6.41%, or 90000
Total cost 3350080 on total Capital of 31884000= 10.51%
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