10. Given the following information for ABC corp., find the WACC. Assume the com
ID: 2761776 • Letter: 1
Question
10. Given the following information for ABC corp., find the WACC. Assume the company’s tax rate is 35%. Debt: 3,000 8 percent coupon bonds outstanding, 20 years to maturity, selling for 103 percent of par; the bonds make semi-annual payments. Common stock: 90,000 shares outstanding, selling for $45 per share; the beta is 1.20. Preferred stock: 13,000 shares of 7 percent preferred stock outstanding currently selling for $108 per share. Market: 8 percent market risk premium and 6 percent risk free rate.
Explanation / Answer
Yield to maturoty of bonds = RATE(40,4,-103,100,0,0)
=3.85%
This semi annual , we multiply it by 2 = 2*3.85%=7.77%
Required return for stock
risk ree rate +B*(risk premium)
= 6% + 1.2*8%
=15.6%
Yield for preferd stock =7/108=6.48%
Par value of bonds have bene assumed to be 1000
Debt Preferd stock Equity Market Value 3090000 4050000 1404000 % aloocation 36.17% 47.40% 16.43% Required return 7.77% 6.48% 15.60% Post tax returns 5.05% 6.48% 15.60% WACC 7.46%Related Questions
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