Given the following information for Evenflow Power Co., the WACC is percent. Ass

Question

Given the following information for Evenflow Power Co., the WACC is percent. Assume the company's tax rate is 35 percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))


Debt:
8,000 6.5 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 92 percent of par; the bonds make semiannual payments.
Common stock:
250,000 shares outstanding, selling for $57 per share; the beta is 1.05.
Preferred stock:
15,000 shares of 5 percent preferred stock outstanding, currently selling for $93 per share.
Market:
8 percent market risk premium and 4.5 percent risk-free rate.

Explanation / Answer

debt value = 8000 * 1000 * 92% = 7360000
common stock = 250000 * 57 = 14250000
preferred stock = 15000 * 93 = 1395000
------------------------------------------------
total assets = 23005000

debt% = 31.993%
common stock% = 61.943%
preferred stock% = 6.064%

cost of debt = 6.5%/92% = 7.065%
cost of common stock = rf + beta*risk premiun = 4.5% + 1.05*8% = 12.9%
cost of preferred tock = 5%*100/93 = 5.376%

WACC = (cost of debt*debt%*(1-tax rate)) + (cost of common stock*common stock%) + (cost of preferred stock*preferred stock%)
= (7.065%*31.993%*(1-35%)) + (12.9%*61.943%) + (5.376%*6.064%)
= 9.7858%
= 9.79% (rounded to 2 decimals)

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