Jordan Co.\'s CFO is trying to determine the company\'s WACC. He has determined
ID: 2651695 • Letter: J
Question
Jordan Co.'s CFO is trying to determine the company's WACC. He has determined that the company's before-tax cost of debt is 8.7%. The company currently has $100,000 of debt, and the CFO believes that the book value of the company's debt is a good approximation for the market value of the company's debt.
* The firm's cost of preferred stock is 9.9%, and the book value of preferred stock is $10,500.
* Its cost of equity is 13.2%, and the company currently has $85,000 of common equity on its balance sheet.
* The CFO has estimated that the firm's market value of preferred stock is $30,000, and the market value of its common equity is $140,000.
Determine Jordan's WACC if its subject to tax rate of 40%
a. 6.48%
b. 11.36%
c. 9.88%
d. 6.42%
Explanation / Answer
C)
Cost Value Percentage Debt 8.70% 100,000.00 37% Preferred 9.90% 30,000.00 11% Equity 13.20% 140,000.00 52% 270,000.00 Tax 40% WACC 9.88%Related Questions
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