12.15. Find the WACC. Hint notice that we don’t include the (1 – TC) term in the

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12.15.     Find the WACC. Hint notice that we don’t include the (1 – TC) term in the WACC equation. We use the aftertax cost of debt in the equation, so the term is not needed here. Begin by finding the market value of each type of financing. MVD, MVE,    MVP, the total market value of the firm, the cost of equity using the CAPM, the cost of debt is the YTM of the bonds, the aftertax cost of deb, the cost of preferred stock. (Show work):

                        WACC =

Finding the WACC. Given the following information for Janicek Power Co., find the WACC. Assume the company's tax rate is 35 percent. Debt 8,500 7.2 percent coupon bonds outstanding, $1,000 par 15 value, 25 years to maturity, selling for 118 percent of par; the bonds make semiannual payments. Common 225,000 shares outstanding, selling for $87 per share; beta stock: is 1.15. Preferred 15,000 shares of 4.8 percent preferred stock outstanding, stock: currently selling for $98 per share. t marnd3.i percentrisk-free rate

Explanation / Answer

- After tax Kd = 72 x (1 - 0.35)/1,180 = 3.97%
Market value of debt = 8,500 x 1,180 = $10,030,000

- Kp = 4.8/98 = 4.90% (Assuming par value of preferred stock = $100)
Market value of preferred stock = 15,000 x 98 = $1,470,000

- Ke = 3.1 + (7 x 1.15) = 11.15%
Market value of common stock = 225,000 x 87 = $19,575,000

- Total market value of the firm = $31,075,000

WACC = [(10,030,000 x 3.97%) + (1,470,000 x 4.90%) + (19,575,000 x 11.15%)] / 31,075,000 = 8.54%

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