Question

Information on Gerken Power Co., is shown below. Assume the company’s tax rate is 34 percent....

Information on Gerken Power Co., is shown below. Assume the company’s tax rate is 34 percent.

Debt:

9,600 9.1 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 98.5 percent of par; the bonds make semiannual payments.
       
Common stock: 221,000 shares outstanding, selling for $84.10 per share; beta is 1.26.
       
Preferred stock:

13,100 shares of 5.8 percent preferred stock outstanding, currently selling for $96.90 per share.
       
Market: 7.05 percent market risk premium and 4.85 percent risk-free rate.


What is the company's cost of each form of financing?

Cost of equity %
Aftertax cost of debt %
Cost of preferred stock %

  
Calculate the company's WACC.

WACC             %

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Answer #1

Calculate the WACC by using the following formulas:

Formulas:

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