The following market information was gathered for the Blender Corporation. The f

ID: 2702565 • Letter: T

Question

The following market information was gathered for the Blender Corporation.

The firm has 1,000 bonds outstanding, each selling for $1,100 with a required

rate of return of 8.00%. Blenders has 5,000 shared of preferred stock outstanding,

selling for $40.00 per share and 50,000 shares of common stock outstanding, selling

for $18.00 per share. If the preferred stock has a required rate of return of 11.00% and

the common stock requires a 14.00% return, and the firm has a corporate tax rate of

30%, then calculate the firm's WACC adjusted for taxes.

show work!!
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value of debt = 1000 * 1100 = 1100000

cost of debbt = 8% * (1-0.3) = 4.8%

value of equity = 50000 * 18 = 900000

value of preferred stock = 5000 * 40 = 200000

market value of firm = 1100000 + 900000 + 200000 = 2200000

WACC = (1100000/2200000) * 4.8% + (900000/2200000) * 14% + (200000/2200000) * 11% = 9.127%

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