Question

Consider the following information for Watson Power Co.:

  

Debt:		3,500 7.5 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 104 percent of par; the bonds make semiannual payments.
Common stock:		84,000 shares outstanding, selling for $56 per share; the beta is 1.2.
Preferred stock:		12,500 shares of 6.5 percent preferred stock outstanding, currently selling for $105 per share.
Market:		9 percent market risk premium and 6 percent risk-free rate.

  

Assume the company's tax rate is 34 percent.

     

Find the WACC.

Multiple Choice

• 10.7%

• 10.8%

• 10.96%

• 11.2%

• 11.71%

Answer 1