You are given the following information for Lightning Power Co. Assume the compa

Question

You are given the following information for Lightning Power Co. Assume the company’s tax rate is 30 percent.

6,000 7.9 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments.

29,000 shares of 4 percent preferred stock outstanding, currently selling for $89 per share.

What is the company's WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

You are given the following information for Lightning Power Co. Assume the company’s tax rate is 30 percent.

Explanation / Answer

Answer:

Debt = 6.0 million pays 7.9%, or 474,000 less 30%=$331800

On a market value of 6.0 x 1.08, or 6.48 million.

Net cost= 3318,00 /6.48 million. = 5.120%

Common - Per CAPM:

R = 5.90 + 1.12 (10%) = 17.1%

Preferred - 29,000 shares at 100 par, or 2,900,000 pays 4%, or 116,000 on market value of 2581,000.

Cost of preferred=116000/2581000=4.49%

Capital structure Number Market value Market value Weights Cost of capital WACC Shares 510000 69 35190000 0.795236 17.10% 13.59854 Debenture 6000 1080 6480000 0.146437 5.12% 0.749759 Preference share 29000 89 2581000 0.058326 4.49% 0.261885 44251000 1 14.61018

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