Question
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Granby Foods' (GF) balance sheet shows a total of $25 million long-term debt with a coupon...
Granby Foods' (GF) balance sheet shows a total of $25 million long-term debt with a coupon rate of 8.50%. The yield to maturity on this debt is 8.00%, and the debt has a total current market value of $27 million. The company has 10 million shares of stock, and the stock has a book value per share of $5.00. The current stock price is $20.00 per share, and stockholders' required rate of return, r s, is 12.25%. The company recently decided that its target capital structure should have 35% debt, with the balance being common equity. The tax rate is 40%. Calculate WACCs based on book, market, and target capital structures. What is the sum of these three WACCs?
| a. |
30.77% |
|
| b. |
29.54% |
|
| c. |
28.36% |
|
| d. |
33.28% |
|
| e. |
32.00% |
Solutions
Expert Solution
Question : What is the sum of the three WACC.
Answer : we got the answer as 33.25% which is near to 33.28% i.e. Option d.
Below is the attached calculation
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