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Consider the following information for Evenflow Power Co., Debt: 5,000 5.5 percent coupon bonds outstanding, $1,000...

Consider the following information for Evenflow Power Co., Debt: 5,000 5.5 percent coupon bonds outstanding, $1,000 par value, 19 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Common stock: 125,000 shares outstanding, selling for $56 per share; the beta is 1.08. Preferred stock: 14,000 shares of 4.5 percent preferred stock outstanding, currently selling for $107 per share. Market: 6.5 percent market risk premium and 4 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, the WACC is 7.43%.

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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