The # of securities outstanding Garden Tools Inc. has bonds, preferred stock, an
ID: 2810782 • Letter: T
Question
The # of securities outstanding
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. Round two decimal places
The # of securities outstanding
Selling price The required rate of return Bonds 1,838 $1,098 11.50% Preferred stocks 4,227 $81.43 18.64% Common stocks 1,028 $55.64 15.60%Explanation / Answer
We are given the required rate of return for each security type which is essentially the respective cost of capital. We will calculate the market values and weights of ech type of security and then calculate the WACC.
We have adjusted the debt require rate by tax = 11.50% * (1-35%) = 7.48%
WACC = 9.21%
Security # Outstanding Market Price Market Value Weightage in Market Value Required Rate Weighted Required Rate Bond 1898 1098 2084004 83.85% 7.48% 6.27% Pref Stock 4227 81.43 344204.61 13.85% 18.64% 2.58% Equity 1028 55.64 57197.92 2.30% 15.60% 0.36% Total 100% 9.21%Related Questions
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