The State Company currently has 11% coupon paying annual bonds of $1,000 face value outstanding in...
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The State Company currently has 11% coupon paying annual bonds of $1,000 face value outstanding in the market with 10 years of maturity with the yield to maturity being 11.21%. They also have common stocks priced at $50.15 that just today paid a dividend of $3.15 and expected to grow at 4% annually. Moreover, they also have preferred stocks which pays $8.5 as dividends with market price of $91.95. Out of the $155,000 of its total capital, $61,000 is financed by debt and $21,000 through preferred stock. Rest of the capital is financed via common stock. Requirements: A. Assuming there is no tax, then what would be the WACC for the company? [3] B. If the company is in the tax bracket of 31%, what is its weighted average cost of capital (WACC)? C. Explain how the WACC is affected by the introduction of corporate tax. [4] [2] The State Company currently has 11% coupon paying annual bonds of $1,000 face value outstanding in the market with 10 years of maturity with the yield to maturity being 11.21%. They also have common stocks priced at $50.15 that just today paid a dividend of $3.15 and expected to grow at 4% annually. Moreover, they also have preferred stocks which pays $8.5 as dividends with market price of $91.95. Out of the $155,000 of its total capital, $61,000 is financed by debt and $21,000 through preferred stock. Rest of the capital is financed via common stock. Requirements: A. Assuming there is no tax, then what would be the WACC for the company? [3] B. If the company is in the tax bracket of 31%, what is its weighted average cost of capital (WACC)? C. Explain how the WACC is affected by the introduction of corporate tax. [4] [2]
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The Weighted Average Cost of Capital WACC is a calculation of a companys cost of capital in which each category of capital is proportionately weighted ... View the full answer
Related Book For
Introduction to Operations Research
ISBN: 978-1259162985
10th edition
Authors: Frederick S. Hillier, Gerald J. Lieberman
Posted Date:
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