8,600 7.9 percent coupon bonds outstanding, $1,000 par value, 24 years to maturi
ID: 2697687 • Letter: 8
Question
8,600 7.9 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 104.5 percent of par; the bonds make semiannual payments.
12,100 shares of 5.80 percent preferred stock outstanding, currently selling for $97.9 per share.
Calculate the WACC.
Debt:8,600 7.9 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 104.5 percent of par; the bonds make semiannual payments.
Common stock: 211,000 shares outstanding, selling for $83.1 per share; beta is 1.16. Preferred stock:12,100 shares of 5.80 percent preferred stock outstanding, currently selling for $97.9 per share.
Market: 7.05 percent market risk premium and 4.85 percent risk-free rate.Explanation / Answer
Kd = 7.9%
Ke = 4.85+ 7.05*1.16 =13.03%
Kp = 5.80%
Wd = 7942000/26660690 =0.30
We = 17,534,100/26660690 = 0.66
Wp= 1184590/26660690 =0.04
WACC = 7.9*0.30 + 13.03*.66 +5.80*0.04
=11.20%
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