Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The
ID: 2651190 • Letter: G
Question
Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%.
Calculate the firm's WACC adjusted for taxes using the market information in the table.
Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)
The Number of Securities Outstanding Selling price The Required Rate of Return Bonds 1,585 $1,271 10.78% Preferred Stocks 5,620 $93.48 18.89% Common Stocks 1,912 $76.20 17.88%Explanation / Answer
WACC = wdrd(1 T) + wpsrps + wsrs
Where w represents the weights and r represents the cost of capital / required rate of return
WACC = 0.09921 i.e. 9.921%
No. Of Securities OS Selling price Total Value Weightsw = Value / Total Value Rate of Return Tax Rate Rate
r w*r Bonds 1,585 $1,271 $2,014,535 0.75 10.78% 35% 7.01% 0.05256 Preferred Stocks 5,620 $93.48 $525,358 0.20 18.89% NA 18.89% 0.03695 Common Stocks 1,912 $76.20 $145,694 0.05 17.88% NA 17.88% 0.00970 $2,685,587 0.09921
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.