Use the following information to answer all 10 questions and determine the company's WACC.

Bonds: The company issued 80,000 bonds.  The bonds have a $1,000 face value with 7.5% coupons with annual payments, 7 years to maturity, and currently sell for $925.  The marginal tax rate is 12%.

Common Stock: The company has 500,000 shares of common stock outstanding, selling for $41 per share.  The company's beta is 1.25, the risk free rate is 2%, and the market risk premium is 9%.

Preferred Stock: The company issued 100,000 shares of preferred stock.  Preferred stock pays a dividend of $1 per share, and preferred stock sells for $20 per share.

 

1.  What is the market value of the firm's debt?

2. What is the market value of the firm's common stock?

3. What is the market value of the firm's preferred stock?

4. What is the market value of the firm?

5. What percent of the firm is finance with debt?

6. What percent of the firm is financed with common stock?

7. What percent of the firm is financed with preferred stock?

8. What is the cost of debt before taxes?  What is the cost of debt after taxes?

9. What is the cost of common stock?  What is the cost of preferred stock?

10. What is the weighted average cost of capital?

 

Answer rating: 100% (QA)

To determine the companys weighted average cost of capital WACC we need to calculate the market values and costs of each component of the capital stru... View the full answer