Question

Consider the following information for Evenflow Power Co.,

  

Debt:		6,000 8.5 percent coupon bonds outstanding, $1,000 par value, 22 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.
Common stock:		126,000 shares outstanding, selling for $63 per share; the beta is 1.09.
Preferred stock:		19,000 shares of 7 percent preferred stock outstanding, currently selling for $105 per share.
Market:		9.5 percent market risk premium and 6 percent risk-free rate.

  

Assume the company's tax rate is 33 percent.

  

Required:

  

Find the WACC. (Do not round your intermediate calculations.)

Answer 1

Formula used for WACC :

WACC = (w1*c1*(1-t))+(w2*c2)+(w3*c3)

where;

w1 = weight of debt in capital structure

w2 = weight of equity in capital structure

w3 = weight of preferred stock in capital structure

c1 = cost of debt in capital structure

c2 = cost of equity in capital structure

c3 = cost of preferred stock in capital structure

t = tax rate