Question

Western Electric has 27,500 shares of common stock outstanding at a price per share of $70 and a rate of return of 13.45 percent. The firm has 6,850 shares of 6.90 percent preferred stock outstanding at a price of $90.50 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $377,000 and currently sells for 106.5 percent of face. The yield to maturity on the debt is 7.81 percent. What is the firm's weighted average cost of capital if the tax rate is 35 percent?

10.50%

10.27%

10.70%

11.46%

11.08%

Answer #1

WACC = Cost of Debt * (1 - Tax Rate) * Weight of debt + Weight of common equity * Cost of common equity + Weight of preferred equity * Cost of preferred equity

All the weights are calculated based on market values.

Market value of debt = 106.5% * $377,000 = $401,505

Market Value of Common Equity = 27,500 * $70 = $1,925,000

Market Value of Preferred Equity = 6,850 * $90.5 = $619,925

Value of total capital = $401,505 + $1,925,000 + $619,925 = $2,946,430

Weight of debt = 401,505/2,946,420 = 13.63%

Weight of common equity = 1,925,000/2,946,420 = 65.33%

Weight of preferred equity = 619,925/2,946,420 = 21.04%

Cost of referred stock = Annual dividend/Market price of share = (6.90% * 100)/90.50 = 7.62%

WACC = [7.81% * (1 - 35%) * 13.63%] + [65.33% * 13.45%] +
[21.04% * 7.62%] = 0.69% + 8.79% + 1.60% = **11.08%** -->
Answer

Western Electric has 35,000 ordinary shares outstanding at a
price per share of $47 and a rate of return of 13.5%. The firm has
5,000 preference shares paying 7% dividend outstanding at a price
of $58 a share. The preferred share has a par value of $100. The
outstanding bond has a total face value of $450,000 and currently
sells for 102% of face. The pre-tax yield-to-maturity on the bond
is 8.49%. Required: a) Calculate the total market value of...

City Rentals has 44,000 shares of common stock outstanding at a
market price of $32 a share. The common stock just paid a $1.50
annual dividend and has a dividend growth rate of 2.5 percent.
There are 7,500 shares of $9 preferred stock outstanding at a
market price of $72 a share. The outstanding bonds mature in 11
years, have a total face value of $825,000, a face value per bond
of $1,000, and a market price of $989 each,...

Kim's Bridal Shoppe has 12,200 shares of common stock
outstanding at a price of $56 a share. It also has 315 shares of
preferred stock outstanding at a price of $90 a share. There are
380 bonds outstanding that have a 7.5 percent semiannual coupon.
The bonds mature in six years, have a face value of $2,000, and
sell at 112 percent of par. What is the capital structure weight of
the common stock?

Here I Sit Sofas has 7,000 shares of common stock outstanding at
a price of $93 per share. There are 560 bonds that mature in 29
years with a coupon rate of 6.7 percent paid semiannually. The
bonds have a par value of $2,000 each and sell at 108 percent of
par. The company also has 5,900 shares of preferred stock
outstanding at a price of $46 per share. What is the capital
structure weight of the debt?

Here I Sit Sofas has 8,000 shares of common stock outstanding at
a price of $103 per share. There are 960 bonds that mature in 39
years with a coupon rate of 7.7 percent paid semiannually. The
bonds have a par value of $2,000 each and sell at 113 percent of
par. The company also has 6,900 shares of preferred stock
outstanding at a price of $56 per share. What is the capital
structure weight of the debt?

Filer Manufacturing has 8,899,657 shares of common stock
outstanding. The current share price is $64.11, and the book value
per share is $8.43. Filer Manufacturing also has two bond issues
outstanding. The first bond issue has a face value of $46,328,853,
has a 0.07 coupon, matures in 9 years and sells for 82 percent of
par. The second issue has a face value of $54,902,898, has a 0.06
coupon, matures in 8 years, and sells for 95 percent of par....

Ten
pins manufacturing has 7.3 million shares of common stock
outstanding. The current share price is $43 and book value per
share is $3. The company also has two bond issues outstanding. The
first bond issue has a face value of $68 million and a coupon rate
of 6 percent and sells for 109.3 percent of par. The second issue
has a face value of $58 million and a coupon rate of 6.5 percent
and sells for 106.9 percent of...

Saint Nick Enterprises has 18,100 shares of common stock
outstanding at a price of $72 per share. The company has two bond
issues outstanding. The first issue has 10 years to maturity, a par
value of $2,000 per bond, and sells for 103 percent of par. The
second issue matures in 24 years, has a par value of $1,000 per
bond, and sells for 108 percent of par. The total face value of the
first issue is $280,000, while the...

Filer Manufacturing has 6,289,669 shares of common stock
outstanding. The current share price is $32.59, and the book value
per share is $5.73. Filer Manufacturing also has two bond issues
outstanding. The first bond issue has a face value of $53,401,490,
has a 0.05 coupon, matures in 10 years and sells for 83 percent of
par. The second issue has a face value of $66,221,324, has a 0.06
coupon, matures in 20 years, and sells for 92 percent of par....

Filer Manufacturing has 4,828,688 shares of common stock
outstanding. The current share price is $39.21, and the book value
per share is $3.32. Filer Manufacturing also has two bond issues
outstanding. The first bond issue has a face value of $61,613,821,
has a 0.05 coupon, matures in 10 years and sells for 83 percent of
par. The second issue has a face value of $43,623,964, has a 0.06
coupon, matures in 20 years, and sells for 92 percent of par....

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 2 minutes ago

asked 10 minutes ago

asked 17 minutes ago

asked 30 minutes ago

asked 34 minutes ago

asked 34 minutes ago

asked 36 minutes ago

asked 36 minutes ago

asked 36 minutes ago

asked 36 minutes ago

asked 37 minutes ago