Consider the following Information for Even flow Power Co., 3.500 5 percent coup

Question

Consider the following Information for Even flow Power Co., 3.500 5 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. 80.500 shares outstanding, selling for $63 per share; the beta Is 1.18. 12.500 shares of 4 percent preferred stock outstanding, currently selling for $107 per share. 5.5 percent market risk premium and 3.5 percent risk-free rate. Assume the company's tax rate Is 33 percent. Required: Find the WACC. (Do not round your intermediate calculations.) 7.05% 6.55% 6.65% 6.77% 7.21%

Explanation / Answer

6.77%

Working:

WACC = (Cost of debt*Weight of debt)+(Cost of preferred stock*Weight of preferred stock)+(Cost of equity*Weight of equity) = (3.35*.364)+(4*.133)+(9.99*.503) = 6.77%

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