Question

Given the following information for Tribune Corporation, find the WACC. Assume the company s tax rate is 25 percent. Debt: 18,000 bonds outstanding, 6 percent coupon, $1,000 par value, 10 years to maturity, selling for 98 percent of par; the bonds make semiannual coupon payments. Common stock: 250,000 shares outstanding, selling for $30 per share; the beta is 1.60. Market: 7 percent market risk premium and 4.0 percent risk-free rate. 6.97% 7.26% 7.53% 7.84% 8.17%

Answer 1

Answer is 7.84%

Debt: 18,000 bonds outstanding, 6 percent coupon, $1,000 par value, 10 years to maturity, selling for 98 percent of par; the bonds make semiannual coupon payments

We need to find yield using RATE funtion

NPER=10*2=20

PMT=1000*6%/2=$30

PV=1000*98%=980

FV=$1000

=rate(20,30,-980,1000)*2

RATE=6.27%

After Tax cost of debt =6.27*(1-.25)=4.70%

Common stock: 250,000 shares outstanding, selling for $30 per share; the beta is 1.60. Market: 7 percent market risk premium and 4.0 percent risk-free rate.

Cost of Equity =rf+beta*(MRP)

=4%+1.60*(7%)

Cost of Equity=15.20%