10,600 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quo
ID: 2766793 • Letter: 1
Question
10,600 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 108. These bonds pay interest semiannually.
305,000 shares of common stock selling for $66.10 per share. The stock has a beta of 1.02 and will pay a dividend of $4.30 next year. The dividend is expected to grow by 5.1 percent per year indefinitely.
What is the firm's cost of each form of financing? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)
Calculate the WACC for Parrothead Enterprises. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
You are given the following information concerning Parrothead Enterprises: What is the firm's cost of each form of financing Calculate the WACC for Parrothead Enterprises.Explanation / Answer
What is the firm's cost of each form of financing? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Aftertax cost of debt % =7.1 X 66% 4.69% Cost of preferred stock % 4.55% 4.55% Cost of equity % For the cost of equity, we need to work out the basic cost of equity for Parrothead Enterprises That is worked out by multiplying the dividend per share by the growth rate and dividing the same by the market value per share Hence, the basic cost of equity for Parrothead Enterprises = 6.84% Given that the market rate of return is 10.4%, the cost of equity for the firm will be Market Rate + (Cost of Equity - Risk Free Rate) X Beta =10.4% + (6.84%-5.1%)X1.02 12.49% Calculate the WACC for Parrothead Enterprises. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) WACC % Calculation of WACC for Parrothead Enterprises Particulars Cost Rate Weighted in $ of Capital Cost $ Debt 1144800 4.69% 53645.33 Common 20160500 12.49% 2517643 Preferred 917760 4.55% 41758.08 Total 22223060 2613047 Thus, the WACC for Parrothead Enterprises = 11.76%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.