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.
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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