Western Electric has 23,000 shares of common stock outstanding at a price per sh

Question

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 outstanding debt has a total face value of $350,000 and 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?

A. 12.69

B. 13.44

C. 14.19

D. 14.47

E. 14.92

Explanation / Answer

Common Stock          1,311,000 Preferred Stock              288,000 Debt              357,000 Total Capital          1,956,000 Kd = 8.49(1-.34) * 357000/1956000 Ke = 14.2 * 1311000/1956000 Kp = 7 * 288000/1956000 WACC = A 12.69

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