The current market conditions have a 12 percent market risk premium on the powerplant with the risk-free rate being 5-percent. The local government has a fixed tax rate of 35 percent. Senior management will ask about the cost to raise capital and we will have to calculate the WACC. The current capital structure of the company is as follows:

• Debt - 7,000 outstanding bonds, at 7.5% coupon and 20 years to maturity. These bonds pay interest semiannually and quoted a price of 108 percent of par.
• Common Stock -180,000 shares outstanding, selling for $50 per share: Beta .90.

Preferred Stock - 8,000 shares of 5.5 percent preferred stock outstanding, currently

selling for $95.00 per share.

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC youll need to find the cost of each component of the capital structure Debt Common Stock and Pr... View the full answer