Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The
ID: 2737615 • 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 1,739 $1,204 9.21% Preferred Stocks 5,210 $59.68 17.54% Common Stocks 1,283 $140.98 15.55%Explanation / Answer
Answer: Calculate after-tax cost of debt financing:
9.21% * (1-0.35) = 5.99%
WACC= 8.04%
The Number of Securities Outstanding (A) Selling price (B) Market value (A*B=C) Weight (D) The Required Rate of Return (E ) WACC (F=D*E) Bonds 1,739 $1,204 2093756 0.80978629 5.99% 4.85% Preferred Stocks 5,210 $59.68 310933 0.12025714 17.54% 2.11% Common Stocks 1,283 $140.98 180877 0.06995657 15.55% 1.09% Total 2585566 8.04%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.