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P14-15 Finding the WACC [LO3] Consider the following information for Evenflow Power Co.,      Debt: 6,000...

P14-15 Finding the WACC [LO3]

Consider the following information for Evenflow Power Co.,

  

  Debt: 6,000 7.5 percent coupon bonds outstanding, $1,000 par value, 22 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.
  Common stock: 132,000 shares outstanding, selling for $61 per share; the beta is 1.06.
  Preferred stock: 19,000 shares of 6.5 percent preferred stock outstanding, currently selling for $106 per share.
  Market: 8 percent market risk premium and 6.5 percent risk-free rate.

  

Assume the company's tax rate is 32 percent.

  

Required:

  

Find the WACC. (Do not round your intermediate calculations.)
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Homework Answers

Answer #1

Calculate the WACC as follows:

Therefore, WACC is 10.05%.

Formulas:

Note:

Rate of common stock formula = Risk free rate + (Beta * Market risk premium)

Rate of preferred stock formula = Dividend / Price

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