Consider the following information on Alexandria Power Co. Debt: 4,000, 7% semia

Question

Consider the following information on Alexandria Power Co.

Debt: 4,000, 7% semiannual coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 102 percent of par; the bonds make semiannual payments.

Preferred Stock:

  10,000 outstanding with par value of $100 and a market value of 105 and $10 annual dividend.

Common Stock: 84,000 shares outstanding, selling for $56 per share, the beta is 2.08

The market risk premium is 5.5%, the risk free rate is 3.5% and Alexandria's tax rate is 32%.

Calculate the WACC

Explanation / Answer

Using BAII financial calculator YTM on debt is 6.80, so after tax is 6.80*(1-.32)= 4.63%

Preferred is 10/105= 9.52%

Common is 3.5 +2.08*5.5= 14.94%

Debt outstanding is 1,020* 4,000= 4,080,000

Preferred is 10,000*105= 1,050,000

Common is 84,000*56= 4,704,000 Total is 9,834,000

So we have 4080/9834 * 4.63 +1050/9834 *9.52 +4704/9834 *14.94= 1.92+1.02+7.15= 10.09% WACC

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.