Ch. 12 Practice Exercise:

Step by Step Contractors has the following information:

-A Beta of 1.5

-A current price of common stock of $45/share, with 2M shares outstanding

-A preferred dividend of $10 with a current price of preferred stock of $100, and 100,000 shares

outstanding

-Two bond issues. The first has 42,000 outstanding bonds with 10 years to maturity, paying a

6.32% coupon, and a current price of $952.38 and the second 60,000 outstanding bonds with 5

years to maturity, paying a 6% coupon, and a yield to maturity of 6%. Par value is $1000 for

both bonds. (please round market values to nearest 0.1M)

-Step by Step's Tax Rate is 20%

-The expected return on the market is 12% and the risk-free rate is 4%

Using Excel find the WACC for Step by Step Contra