b. The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH¢ 79, and a par value of GH¢ 100. Common stock: 2,600,000 shares of common stock; the current price is GH¢ 65 and the beta of the stock is 1.15. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk- free rate is 4 percent.

b. The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH¢ 79, and a par value of GH¢ 100. Common stock: 2,600,000 shares of common stock; the current price is GH¢ 65 and the beta of the stock is 1.15. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk- free rate is 4 percent.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Debenture Valuation

A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.

Note Valuation

It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

Question

b. The Saunders Investment Bank has the following financing outstanding. What is the WACC
for the company?
Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds
have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years
until maturity.
Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH¢ 79, and
a par value of GH¢ 100.
Common stock: 2,600,000 shares of common stock; the current price is GH¢ 65 and the beta of
the stock is 1.15.
Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-
free rate is 4 percent.

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