You are given the following information for Watson Power Co. Assume the company’
ID: 2760450 • Letter: Y
Question
You are given the following information for Watson Power Co. Assume the company’s tax rate is 30 percent.
6,000 6.1 percent coupon bonds outstanding, $1,000 par value, 15 years to maturity, selling for 104 percent of par; the bonds make semiannual payments.
11,000 shares of 4 percent preferred stock outstanding, currently selling for $71 per share.
What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
You are given the following information for Watson Power Co. Assume the company’s tax rate is 30 percent.
Explanation / Answer
Answer
Particulars
Market value
Weight of market value
Cost of capital
Weighted cost
A
B
A*B
Debt
6240000
0.26
4.27%
1.12%
6000*1000*104%
6.1%*(1-0.3)
Common stock
16830000
0.71
10.52%
7.42%
330000*51
Preferred stock
781000
0.03
4%
0.13%
11000*71
23851000
1
Weighted average cost of capital
8.67%
Particulars
Market value
Weight of market value
Cost of capital
Weighted cost
A
B
A*B
Debt
6240000
0.26
4.27%
1.12%
6000*1000*104%
6.1%*(1-0.3)
Common stock
16830000
0.71
10.52%
7.42%
330000*51
Preferred stock
781000
0.03
4%
0.13%
11000*71
23851000
1
Weighted average cost of capital
8.67%
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