Finding the WACC problem number 15

103 13. WACC percent, and the tax rate is 23 perce a. If the company's cost of equity is 11 percent, what is its pretax cost or debt? b. If the aftertax cost of debt is 3.8 percent, what is the cost of equity? 14. Finding the WACC Given the following information for Lightning Power LO 3 Co., find the WACC. Assume the company's tax rate is 21 percent. Debt: 16,000 6.2 percent coupon bonds outstanding. $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments. Common stock: 535,000 shares outstanding. selling for $81 per share; beta is 1.20. Preferred stock: 20,000 shares of 4.2 percent preferred stock outstanding, currently selling for $92 per share. The par value is $100. Market: 7 percent market risk premium and 3.1 percent risk- free rate. LO 3 15. Finding the WACC Hankins Corporation has 5.4 million shares of common stock outstanding: 290,000 shares of 5.2 percent preferred stock outstanding par value of $100; and 125,000 5.7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $72 per share and has a beta of 1.13. the preferred stock currently sells for $103 per share, and the bonds have 20 years to maturity and sell for 103 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 4.3 percent, and the firm's tax rate is 23 percent. a. What is the firm's market value capital structure? b. If the firm is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? LO 4 16. SML and WACC An all-equity firm is considering the following projects Project Beta RR 80 .90 9.3% 11.4 N 1.10 1.35 12.1 15.1