Given the following information for Evenflow Power Co., the WACC is percent. Ass
ID: 2633958 • Letter: G
Question
Given the following information for Evenflow Power Co., the WACC is percent. Assume the company's tax rate is 35 percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))
8,000 bonds outstanding, 6.5 percent coupon rate (APR), $1,000 par value, 20 years to maturity, selling for 92 percent of par; the bonds make semiannual payments.
250,000 shares outstanding, selling for $57 per share; the beta is 1.05.
15,000 shares of 5 percent preferred stock outstanding, currently selling for $93 per share. (Note: a 5% preferred stock means that the dividend is $5)
8 percent market risk premium and 4.5 percent risk-free rate.
Debt:8,000 bonds outstanding, 6.5 percent coupon rate (APR), $1,000 par value, 20 years to maturity, selling for 92 percent of par; the bonds make semiannual payments.
250,000 shares outstanding, selling for $57 per share; the beta is 1.05.
Preferred stock:15,000 shares of 5 percent preferred stock outstanding, currently selling for $93 per share. (Note: a 5% preferred stock means that the dividend is $5)
Market:8 percent market risk premium and 4.5 percent risk-free rate.
Explanation / Answer
920 = 32.5 * PVIFA(r%,40) + 1000 * PVIF(r%,40)
r= 3.63%
after tax cost of debt = 2 * 3.63 * (1-0.35) = 4.719%
value of debt = 8000 * 920 = 7360000 = 7.36 million
cost of equity = 4.5+ 1.05 * 8 = 12.90%
value of equity = 250000 * 57 = 14250000 = 14.25 million
cost of preferred stock = 5/93 = 5.376%
value of preferred stock = 15000 * 93 = 1395000 = 1.395 million
total value = 23.005 million
wacc = 7.36/23.005 * 4.719 + 14.25/23.005 * 12.90 + 1.395/23.005 * 5.376
= 9.83%
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