Consider the following information for Watson Power Company: Debt: 5,500 5.5 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. Common stock: 115,500 shares outstanding, selling for $59 per share; the beta is 1.19. Preferred stock: 19,500 shares of 4.5 percent preferred stock outstanding, currently selling for $108 per share. Market: 6 percent market risk premium and 4.5 percent risk-free rate. Assume the company's tax rate is 31 percent. Find the WACC.
Consider the following information for Watson Power Company:
Debt: 5,500 5.5 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 105 percent of par; the bonds make semiannual payments.
Common stock: 115,500 shares outstanding, selling for $59 per share; the beta is 1.19.
Market: 6 percent market risk premium and 4.5 percent risk-free rate.
Assume the company's tax rate is 31 percent.
Find the WACC.
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Weighted average cost of capital (WACC) is calculated by multiplying the cost of each source of finance (equity, debt, preferred stock) and their proportion in the capital structure ( weights), and then adding the products together.
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The answer 7.42% you got is not in the option. Below are the options:
a. 7.37% b. 7.99% c.7.51% d. 7.27% e.7.77%
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