Question

Weighted average cost of capital example • A corporation has 10,000 bonds outstanding with a 6%...

Weighted average cost of capital example

A corporation has 10,000 bonds outstanding with a 6%

annual coupon rate, 8 years to maturity, a $1,000 face

value, and a $1,100 market price.

The company’s 100,000 shares of preferred stock pay a $3

annual dividend, and sell for $30 per share.

The company’s 500,000 shares of common stock sell for

$25 per share and have a beta of 1.5. The risk free rate is

4%, and the market return is 12%.

Assuming a 40% tax rate, what is the company’s WACC?

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