ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock,...

ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock, and 20,000 4.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 21 years. Currently the bonds are selling at 104% of their face values. The market risk premium is 10%. The risk-free rate is 2.5%. The common stock sells for $75 per share. The preferred stock sells for $40 per share and the preferred dividend is $6 per share.

If the corporate tax rate is 34%, what is the company's WACC? Show the decimal number and keep the number with 4 decimal places.

Solutions

Expert Solution

Before tax cost of debt can be calculated as follows :

The result of the above table is as follows :

After tax cost of debt :

= 17.29% x ( 1 - 0.34 ) = 11.41%

Calculate the WACC as follows, WACC = 13.8443% :

The result of the above table is as follows :

jeff jeffy answered 1 year ago

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