Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon
ID: 2700266 • Letter: M
Question
Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today, the debt is selling at $1,100. The firm%u2019s tax bracket is 20%.
Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $20.
Micro Spinoffs%u2019s cost of equity is 22%. What is its WACC if equity is 50%, preferred stock is 20%, and debt is 30% of total capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today, the debt is selling at $1,100. The firm%u2019s tax bracket is 20%.
Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $20.
Micro Spinoffs%u2019s cost of equity is 22%. What is its WACC if equity is 50%, preferred stock is 20%, and debt is 30% of total capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
Time 20 years ========================================================================================================================================================================================= Coupon rate 8% ========================================================================================================================================================================================= Sales cost of debt $1,100.00 ========================================================================================================================================================================================= Tax bracket 20% ========================================================================================================================================================================================= Using a financial calculator: ========================================================================================================================================================================================= Interest rate on debt = 7.03% ========================================================================================================================================================================================= After-tax cost of debt = 5.62% -----answer ========================================================================================================================================================================================= Dividend $4.00 ========================================================================================================================================================================================= Stock price $20.00 ========================================================================================================================================================================================= Cost of preferred stock = 20%---------------------answer ========================================================================================================================================================================================= Time 20.00 ========================================================================================================================== Coupon rate 8% ========================================================================================================================== Sales cost of debt $1,100.00 ========================================================================================================================== Tax bracket 20% ========================================================================================================================== Dividend $4.00 ========================================================================================================================== Stock price $20.00 ========================================================================================================================== Cost of equity 22% ========================================================================================================================== Equity 50% ========================================================================================================================== Preferred stock 20% ========================================================================================================================== Debt 30% ========================================================================================================================== After-tax cost of debt = 5.62% ========================================================================================================================== Cost of preferred stock = 20.00% ========================================================================================================================== Cost of equity = 22.00% ========================================================================================================================== WACC =[D/V X r debt x (1-Tc)]+ [P/V X r preferred]+ [E/V X r equity] ========================================================================================================================== WACC = 16.69%- -----------------answer
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.