Question

You are given the following information for Lightning Power Co. Assume the company's tax rate is 25 percent.

Debt: 15,000 6.4 percent coupon bonds outstanding$1,000 par value, 28 years to maturity, selling for 106 percent of par, the bonds make semiannual payments.

Common Stock: 480,000 shares outstanding, selling for $66 per share; beta is 1.17.

Preferred Stock: 21,000 shares of 4.2 percent preferred stock outstanding, currently selling for $87 per share. The par value is $100 per share.

5 percent market risk premium and 5.3 percent risk-free rate.

what is the companys WACC

Answer 1

The company's WACC is 8.77%

Table is provided below:

	Shares/Bonds	Price	Market value	Rate	Weight	Weight*Rate
Debt	15,000.00	1,060.00	15,900,000.00	5.96%	32.18%	1.44%
Common stock	480,000.00	66.00	31,680,000.00	11.15%	64.12%	7.15%
Preferred stock	21,000.00	87.00	1,827,000.00	4.83%	3.70%	0.18%
WACC				8.77%

Formulas used can be seen in the image attached below: