WACC The current stock price for a company is $38 per share, and there are 4 mil

Question

WACC The current stock price for a company is $38 per share, and there are 4 million shares outstanding. The beta for this firms stock is 1, the risk-free rate is 4.2, and the expected market risk premium is 6%. This firm also has 90,000 bonds outstanding, which pay interest semiannually. These bonds have a coupon interest rate of 9%, 22 years to maturity, a face value of $1000, and a current price of 1,063.64. If the corporate tax rate is 36%, what is the weighted average cost of capital for this firm(WACC)?

Explanation / Answer

All Amounts in $ Particulars of Capital No. Market Cost of Rate of Post Tax Weighted Rate $ Capital Capital Rate Cost Common Stock 4000000 38 152000000 1.8% 1.8% 2736000 Debt 90000 1063.64 95727600 9% 5.7600% 5513910 247727600 8249910 Weighted Average Cost of Capital (WACC) = 3.33% Rate of Common Stock = (Market Risk Premium - Risk-free Rate) X Beta

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