Question

A company has $96 million in outstanding bonds, and 10 million shares of stock currently trading...

A company has $96 million in outstanding bonds, and 10 million shares of stock currently trading at $34 per share.The bonds pay an annual coupon rate of 8% and is trading at par. The company's beta is 1, its tax rate is 40%, the risk-free rate is 3%, and the market risk premium is 4%. What is this firm's WACC? Enter your answer as a percentage, without the percentage sign ('%'), rounded to 1 decimal. For example, if your answer is 0.0789, that's 7.9%, so just enter 7.9

Homework Answers

Answer #1

WACC is weighted Avg cost of sources in capital structure

Ke = Rf + Beta ( Market risk Premium )

= 3% + 1 ( 4% )

= 3% +4%

= 7%

Kd = YTM

Where bond is trading at par, YTM and coupon rates are same

thus YTM is 8%

After Tax cost of Debt = YTM ( 1 - Tax rate )

= 8% * ( 1 - 0.4 )

= 8% * 0.6

= 4.8%

WACC:

Source Qty Price Value ( in M) Weight Cost WTd Cost
Debt 96 $      1.00 $   96.00 0.220183 4.80%     0.0106
Equity 10 $   34.00 $ 340.00 0.779817 7.00%     0.0546
WACC     0.0652

WACC is 6.52%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A company has $91 million in outstanding bonds, and 10 million shares of stock currently trading...
A company has $91 million in outstanding bonds, and 10 million shares of stock currently trading at $32 per share.The bonds pay an annual coupon rate of 5% and is trading at par. The company's beta is 0.7, its tax rate is 40%, the risk-free rate is 4%, and the market risk premium is 6%. What is this firm's WACC? Enter your answer as a percentage, without the percentage sign ('%'), rounded to 1 decimal. For example, if your answer...
Chirping Burger Corporation considers an expansion project. It currently has 10 million outstanding shares trading at...
Chirping Burger Corporation considers an expansion project. It currently has 10 million outstanding shares trading at $30 per share. Equity has an estimated beta of 1.4. The risk-free rate is 2%, while the market risk premium is 5%. It also has 200,000 outstanding bonds with 20 years to maturity, 8% coupon rate, $1,000 par, currently trading at par. The corporate tax rate is 30%. The project will require an investment if $112 million and will produce a net after tax...
LucaCorp.'s 4.5% bonds are currently quoted as trading at "96." There are 10,000 bonds outstanding. The...
LucaCorp.'s 4.5% bonds are currently quoted as trading at "96." There are 10,000 bonds outstanding. The firm's marginal tax rate is 30%. The firm's stock is trading for $47 per share, with 1 million shares outstanding. The weight of the debt, WD, is ____%.
1. Organic Produce Corporation has 7.5 million shares of common stock outstanding, 500,000 shares of 7%...
1. Organic Produce Corporation has 7.5 million shares of common stock outstanding, 500,000 shares of 7% preferred stock outstanding, and 175,000 of 8.2% semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $64 per share and has a beta of 1.2, the preferred stock currently sells for $108 per share, and the bonds have 15 years to maturity and sell for 96% of par. The market risk premium is 6.8%, T-Bills are yielding 5.5%, and...
Organic Produce Corporation has 7.5 million shares of common stock outstanding, 500,000 shares of 7% preferred...
Organic Produce Corporation has 7.5 million shares of common stock outstanding, 500,000 shares of 7% preferred stock outstanding, and 175,000 of 8.2% semiannual bonds outstanding, par value of $1,000 each. The common stock currently sells for $64 per share and has a beta of 1.2, the preferred stock currently sells for $108 per share, and the bonds have 15 years to maturity and sell for 96% of par. The market risk premium is 6.8%, T-Bills are yielding 5.5%, and the...
A Mining company has 4.3 million shares of common stock outstanding and 85,000 bonds outstanding, par...
A Mining company has 4.3 million shares of common stock outstanding and 85,000 bonds outstanding, par value of $1,000 each. Each bond has a 6.8 percent annual coupon rate and the bonds have 23 years to maturity and is now selling at $789.23. (Based on the current price, its YTM is 9%) Coupon is paid annually. The common stock currently sells for $58.00 per share and has a beta of 0.90. The market risk premium is 7 percent and Treasury...
Nike has 9 million shares of common stock outstanding and 12,000 8.5% semiannual bonds outstanding, par...
Nike has 9 million shares of common stock outstanding and 12,000 8.5% semiannual bonds outstanding, par value of $10,000 each. Common stock currently sells for $34 per share and has a beta of 1.20. The bonds have 15 years to maturity and sell for 93% of par. The market risk premium is 10%, Tbills are yielding 5% and the firm’s tax rate is 35%. Find Nike’s weighted average cost of capital (WACC).
There are 2 million common shares of stock outstanding, currently trading for $35 per share. The...
There are 2 million common shares of stock outstanding, currently trading for $35 per share. The most recent dividend paid was $4 per share. Dividends are expected to increase by 2% per year for the foreseeable future. There are 25,000 bonds outstanding with a coupon rate of 5% that mature in eight years. The face value of these bonds is $1000, coupon payments are made annually, and the yield to maturity is 4%. There are 75,000 bonds outstanding with a...
BHC Mining Corporation has 3 million shares of common stock outstanding and 90,000 9 percent semiannual...
BHC Mining Corporation has 3 million shares of common stock outstanding and 90,000 9 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $40 per share and has a beta of 1.1; the bonds have a yield to maturity of 7% and sell for 105 percent of par. The market risk premium is 12 percent, T-bills are yielding 2 percent, and the company’s tax rate is 34 percent. What is the company's WACC? Group of...
Hero Manufacturing has 8.5 million shares of common stock outstanding. The current share price is $77...
Hero Manufacturing has 8.5 million shares of common stock outstanding. The current share price is $77 and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of 6.6 percent and sells for 108.5 percent of par. The second issue has a face value of $55.3 million, a coupon rate of 7.8 percent and sells for 112.3 percent of par. The...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT