Problem 10. Deer Pointe Charters has $20 million in outstanding long-term debt. In addition, the firm...

Problem 10. Deer Pointe Charters has $20 million in outstanding long-term debt. In addition, the firm has 1 million shares of $25 par value preferred stock shares currently valued at $4.50 per share. Further, the firm’s outstanding common shares are currently trading at $15 per share and they have 1.7 million shares outstanding with 2 million shares authorized. The firm’s total assets are $35.5 million. The firm’s debt is trading at par value and carries a coupon of 6.5% and matures in 25 years. The preferred stock pays a dividend of $0.38 per share. The firm has a beta of 1.22. Treasuries are currently yielding about 1.78% and the S&P 500 has a return of about 10.5%. The firm recently paid a dividend of $0.98 per share and dividends are growing at about 3.75% annually. Determine the firm’s WACC using the (1) CAPM approach to find Rs; and (2) DDM approach to find Rs. The firm’s tax rate is 28%.

Expert Solution

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jeff jeffy answered 5 months ago

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