Consider the following information for Evenflow Power Co., Debt: 2,500 bonds that each year pay 5.5 percent of par value as an annual coupon, have a $1,000 par value, and a yield to maturity of 5.25 percent compounded annually. The bonds have 19 years to maturity and currently sell for 103 percent of par (face) value. 57,500 shares outstanding, selling for $59 per share; the Common stock: beta is 1.17. Preferred stock: 8,500 preferred shares that pay a dividend of 5 percent annually on $100 par value, and currently sell for $106 per share. 6.5 percent market risk premium and 5 percent risk-free Market: rate. Assume the company's tax rate is 32 percent. Note: Face value is sometimes used interchangeably with par value. Preferred shares almost always pay a constant dividend, but the dividend is usually quoted as a percent of par value (just like coupons and bonds). So as an example, a 7% preferred dividend on a $100 par value means the annual dividend payment is $7. Required: Find the WACC. (Do not round your intermediate calculations.)
Consider the following information for Evenflow Power Co., Debt: 2,500 bonds that each year pay 5.5 percent of par value as an annual coupon, have a $1,000 par value, and a yield to maturity of 5.25 percent compounded annually. The bonds have 19 years to maturity and currently sell for 103 percent of par (face) value. 57,500 shares outstanding, selling for $59 per share; the Common stock: beta is 1.17. Preferred stock: 8,500 preferred shares that pay a dividend of 5 percent annually on $100 par value, and currently sell for $106 per share. 6.5 percent market risk premium and 5 percent risk-free Market: rate. Assume the company's tax rate is 32 percent. Note: Face value is sometimes used interchangeably with par value. Preferred shares almost always pay a constant dividend, but the dividend is usually quoted as a percent of par value (just like coupons and bonds). So as an example, a 7% preferred dividend on a $100 par value means the annual dividend payment is $7. Required: Find the WACC. (Do not round your intermediate calculations.)
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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Transcribed Image Text:Consider the following information for Evenflow Power Co.,
Debt:
2,500 bonds that each year pay 5.5 percent of par value as
an annual coupon, have a $1,000 par value, and a yield to
maturity of 5.25 percent compounded annually. The bonds
have 19 years to maturity and currently sell for 103 percent
of par (face) value.
57,500 shares outstanding, selling for $59 per share; the
Common stock:
beta is 1.17.
Preferred stock:
8,500 preferred shares that pay a dividend of 5 percent
annually on $100 par value, and currently sell for $106 per
share.
6.5 percent market risk premium and 5 percent risk-free
Market:
rate.
Assume the company's tax rate is 32 percent. Note: Face value is sometimes used
interchangeably with par value. Preferred shares almost always pay a constant dividend,
but the dividend is usually quoted as a percent of par value (just like coupons and
bonds). So as an example, a 7% preferred dividend on a $100 par value means the
annual dividend payment is $7.
Required:
Find the WACC. (Do not round your intermediate calculations.)
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