Sapp Trucking\'s balance sheet shows a total of non-callable $45 million long-te

Question

Sapp Trucking's balance sheet shows a total of non-callable $45 million long-term debt with a coupon rate of 7% and a yield to maturity of 6%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current market value of equity (stock price) is $20 per share. Additionally, stockholders' required return is 13.5%, and the firm's tax rate is 40%. What is the company's WACC based on market value weighting? Your answer should be between 9.72 and 12.50, rounded to 2 decimal places, with no special characters

Explanation / Answer

Answer is 11.52%

Market Value Cost of Capital Weight Weight*Cost of Capital Debt 50 3.60% 0.2 0.0072 Equity 200 13.50% 0.8 0.108 250 WACC 11.52%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.