Given the following information for Evenflow Power Co., the WACC is ______ perce

Question

Given the following information for Evenflow Power Co., the WACC is ______ percent. Assume the company's tax rate is 34 percent. ()

4,000 8.5 percent coupon bonds outstanding, $1,000 par value, 19 years to maturity, selling for 105 percent of par; the bonds make semiannual payments.

92,000 shares outstanding, selling for $63 per share; the beta is 1.1.

11,500 shares of 7.5 percent preferred stock outstanding, currently selling for $106 per share.

9.5 percent market risk premium and 7 percent risk-free rate.

Given the following information for Evenflow Power Co., the WACC is ______ percent. Assume the company's tax rate is 34 percent. ()

Explanation / Answer

Kd = 8.5(1-0.34) = 5.61%

Ke= 7+9.5*1.1 = 17.45%

Kp = 7.5%

We=5,796,000/11,215,000 = 0.52

Wd=4,200,000/11,215,000= 0.37

Wp =1,219,000/11,215,000=0.11

WACC= 5.61*0.37+17.45*0.52+7.5*0.11

=11.97%

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