You are given the following information for Watson Power Co. Assume the company’

Question

You are given the following information for Watson Power Co. Assume the company’s tax rate is 40 percent.

Debt: 8,000 6.3 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 106 percent of par; the bonds make semiannual payments.

Common stock: 350,000 shares outstanding, selling for $53 per share; the beta is 1.09.

Preferred stock: 13,000 shares of 3 percent preferred stock outstanding, currently selling for $73 per share.

Market: 10 percent market risk premium and 4.3 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

WACC % ?

Explanation / Answer

Watson Power Co. All Amounts in $ Capital Structure of the Company Particulars Value Cost Weighted % Cost Debt 8480000 6.3 504000 Common Stock 18550000 6.213 1152511.5 Preferred Stock 949000 3 28470 Total 27979000 1684981.5 WACC = Weighted Cost / Value = 6.02%

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