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 preferred stock
outstanding at a price of $48 a share. The preferred stock pays a fixed dividend of $7 per
share every period. The outstanding debt has a total face value of $350,000 and currently
sells for 102 percent of face value. 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 percent
B. 13.44 percent
C. 14.19 percent
D. 14.47 percent
E. 14.92 percent

SHOW WORK OR I WILL NOT RATE!

Explanation / Answer

Common Stock: 23,000 * $57 = $1,311,000
Preferred Stock: 6,000 * $48 = $288,000
Debt: $350,000 * 1.02 = $357,000
Value = $1,956,000

WACC = (1,311,000 / 1,956,000)(0.142) + (288,000 / 1,956,000)(0.07 * 100/48) + (357,000 / 1,956,000)(0.0849)(1 - 0.34)

WACC = 12.69%

A) 12.69 percent

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.