Find the WACC for HHH Inc. using the following: The company has 10,000 coupon bo

Question

Find the WACC for HHH Inc. using the following: The company has 10,000 coupon bonds oustanding selling at 104% of par, with a 7% coupon rate, semi-annual payments, $1,000 par value, and 20 years to maturity. Common stock has 200,000 shares outstanding, selling at $65 per share and a beta of 0.90. The company's tax rate is 40%. The risk-free rate of interest is 3.75% and there is a market risk premium of 5.5%.

Calculate the cost of equity and the cost of debt.

Find the WACC for HHH Inc. using the following: The company has 10,000 coupon bonds oustanding selling at 104% of par, with a 7% coupon rate, semi-annual payments, $1,000 par value, and 20 years to maturity. Common stock has 200,000 shares outstanding, selling at $65 per share and a beta of 0.90. The company's tax rate is 40%. The risk-free rate of interest is 3.75% and there is a market risk premium of 5.5%.

Calculate the cost of equity and the cost of debt.

Explanation / Answer

Answer )

Cost of equity(CE) = Risk free rate + Beta * Risk premium

Cost debt (CD)= Rate (1-tax rate)

WACC = CE * weight of equity + CD * Weight of debt

Using the concept above calculation below:

Cost of Equity Amount of Equity Riskfree rate 0.00% Shares 200000 Beta 0.90 Price 65 Market risk premium 5.50% Value 13000000 Cost of Equity 4.95% Cost of Debt Amount of Debt Rate 7.50% Book value 10000000 Taxrate 40% Adjustment 104 Cost of Debt 4.50% Value 1040000000

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