In: Accounting
Firm C has a tax rate = 25%; 20-year, 7% coupon, annual payment noncallable bonds selling for $900; 10%, $100 par value, quarterly dividend, perpetual preferred stock sells for $104; Common stock sells for $30 with D0 = $2 and g = 4%; the firm has beta = 1.2; rRF = 7%; RPM = 6%; the Bond-Yield Risk Premium = 6% and on the accounting books they have listed $2 million of bonds, $500,000 of preferred stock and $2.5 million of common stock. What is the WACC?
I have calculated WACC as required in question and handwritten solution is uploaded in legible language.