Consider the following capital structure for Sea Shore Corporation. The company has a publicly-traded bond issue,...

Consider the following capital structure for Sea Shore Corporation. The company has a publicly-traded bond issue, preferred shares, and common equity in its capital structure. The firm’s tax rate is 35%. The risk-free rate is 7%.

Details on the components of the capital structure are listed below.

Debt:	Fixed coupon-paying bond issue
	$80 million par
	6% semiannual coupon
	Remaining maturity of 10 years
	Currently priced in market at 105% of par value

Preferred equity:	$100 million par
	6% annual coupon
	Each $1,000 par issue is currently priced at $925.

Common equity:	10 million shares outstanding
	Current share price: $40
	Stock beta: 0.5
	Market risk premium = 10%

Sea Shore’s weighted average cost of capital (wacc) is closest to:

A) 7.62%

B) 8.51%

C) 9.87%

D) 10.14%

Solutions

Expert Solution

Therefore Correct Option is C 9.87%

jeff jeffy answered 1 month ago

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