In the previous problem, suppose the companys stock has a beta of 1.20. The risk-free rate is
Question:
In the previous problem, suppose the company’s stock has a beta of 1.20. The risk-free rate is 3.1 percent, and the market risk premium is 6.5 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company’s WACC?
Data from Previous Problem
Pandora Manufacturing has 5.8 million shares of common stock outstanding. The current share price is $52, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $50 million, a coupon rate of 6.1 percent, and sells for 108.3 percent of par. The second issue has a face value of $40 million, has a coupon rate of 6.3 percent, and sells for 108.9 percent of par. The first issue matures in 8 years, the second in 27 years.
Step by Step Answer:
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan