25. Western Electric has 23,000 shares of common stock outstanding at a price pe

Question

25.

Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The company also has 350 corporate bonds, each with $1000 par value, and the bond currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent.

What is the firm's weighted average cost of capital if the tax rate is 34 percent?

14.19%

13.44%

14.47%

12.69%

A.

14.19%

B.

13.44%

C.

14.47%

D.

12.69%

Explanation / Answer

Answer:

Market value

Weight

Cost

WACC

Common stock

1311000

0.6702454

14.2

9.51748

Preferred stock

288000

0.1472393

14.58

2.14675

Bond

357000

0.1825153

5.6034

1.02271

1956000

1

12.69%

Market value

Weight

Cost

WACC

Common stock

1311000

0.6702454

14.2

9.51748

Preferred stock

288000

0.1472393

14.58

2.14675

Bond

357000

0.1825153

5.6034

1.02271

1956000

1

12.69%

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