An all-equity company has common and preferred shares. There are 250,000 common shares outstanding with a...

An all-equity company has common and preferred shares. There are 250,000 common shares outstanding with a price of $31.30 per share and with an expectation to continue to provide a dividend of $4.75 per share. There are 50,000 preferred shares outstanding, with a 3.10% dividend, $100 par value per share, and $61.80 market value per share. Given this information, what is the company's WACC?

a) 13.53 %

b) 12.91%

c) 13.22 %

d) 12.61 %

e)12.30 %

Expert Solution

Cost of equity shares = dividend / price
=$4.75/31.30

=15.18%

Cost of preferred stock = Dividend / market price
=$3.10/61.80

=5.02%

Value of equity = 250000*$31.30 =$7825000
Value of preferred stock = 50000*$61.80 =3090000



Mode	Value	Weight	Cost	WACC
a	b	c =b/10915000	d	e=c*d
Common stock	$ 78,25,000	0.72	15.18%	10.88%
Preferred stock	$ 30,90,000	0.28	5.02%	1.42%

Total	$ 1,09,15,000	1.00		12.30%


Correct Answer = e)12.30%

jeff jeffy answered 2 years ago

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An all-equity company has common and preferred shares. There are 250,000 common shares outstanding with a...

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