Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The
ID: 2723693 • Letter: G
Question
Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%.
Calculate the firm's WACC adjusted for taxes using the market information in the table.
Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)
The Number of Securities Outstanding Selling price The Required Rate of Return Bonds 1,640 $1,107 10.68% Preferred Stocks 4,713 $68.79 15.04% Common Stocks 1,061 $101.62 15.82%Explanation / Answer
No. of securities outstanding
Selling price
Market value
Weights
Bonds
1640
$ 1,107.00
$ 1,815,480.00
0.81
Preferred stock
4713
$ 68.79
$ 324,207.27
0.14
Common stock
1061
$ 101.62
$ 107,818.82
0.05
$ 2,247,506.09
Required rate of return
Tax @ 35%
After tax rate of return
Weights
Weighted rate of return
Bonds
10.68%
3.74%
6.94%
0.81
5.62%
Preferred stock
15.04%
-
15.04%
0.14
2.11%
Common stock
15.82%
-
15.82%
0.05
0.79%
8.52%
Hence WACC = 8.52%
No. of securities outstanding
Selling price
Market value
Weights
Bonds
1640
$ 1,107.00
$ 1,815,480.00
0.81
Preferred stock
4713
$ 68.79
$ 324,207.27
0.14
Common stock
1061
$ 101.62
$ 107,818.82
0.05
$ 2,247,506.09
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