You are given the following information for Huntington Power Co. Assume the comp

Question

You are given the following information for Huntington Power Co. Assume the company's tax rate is 40 percent. Debt: 8.000 7.5 percent coupon bonds outstanding. $1,000 par value, 25 years to maturity selling for 104 percent of par: the bonds make semiannual payments. Common stock: 470.000 shares outstanding, selling for $65 per share: the beta is 1.08. Market: 8 percent market risk premium and 5.5 percent risk-free rate. 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).) WACC

Explanation / Answer

After tax cost of debt= 7.5(1-.4)=4.5%

Ke=Rf+beta*market risk premium

=5.5+1.08*8

= 14.14%

Amount of bond= 8000*1000*104%=8,320,000

Amount of common stock= 3,055,000

Total Amount= 11375000

Weighted Average cost= 14.4*(3055000/11375000)+ 4.5*(8320000/11375000)

=7.16%

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