The firm uses debt, common equity and preferred stock in its capital structure. Presently the debt $($all public market bonds$)$ is valued at $46$$ million, preferred stock sells at $80$$ per share $(200,000$ shares outstanding$),$ and common stock is valued at $$138$ million. The preferred stock pays $4$$ dividend annually. The bonds have a yield to maturity of $3\mathrm{.}8\%,$ which is higher than the risk free rate of $2\mathrm{.}4\%,$ and the common stock caries a beta of $1\mathrm{.}6.$ The market risk premium for equity in the company's market is $5\mathrm{.}6\%.$

Determine what would be a viable WACC to use as a discount rate.

Answer rating: 100% (QA)

To determine the Weighted Average Cost of Capital WACC we need to calculate the cost of each compone... View the full answer