Debt: 6.4% coupon bonds outstanding, $1000 par value, 15 years to maturity selling for $1,005, semi-annual payments. • Common stock: Selling for $83 per share; beta is 1.07. The last paid dividend was $5.42 and dividends are expected to grow at a rate of 2.5% forever. If the firm uses the own-bond-yield-plus-risk-premium method, the risk premium is estimated to be 2.7%. • Market: 5% market risk premium and 3.5% risk-free rate. • Tax rate = 35%. Part 1: Compute the cost of debt Part 2: Compute the cost of equity (use all 3 methods and take an average) Part 3: Compute the WACC. Assume that the weight on debt is 25% , the weight on preferred stock is 10% , and the weight on equity is 65% . The cost of preferred stock is 7.7%. The WACC is ?
Debt: 6.4% coupon bonds outstanding, $1000 par value, 15 years to maturity selling for $1,005, semi-annual payments.
• Common stock: Selling for $83 per share; beta is 1.07. The last paid dividend was $5.42 and dividends are expected to grow at a rate of 2.5% forever. If the firm uses the own-bond-yield-plus-risk-premium method, the risk premium is estimated to be 2.7%.
• Market: 5% market risk premium and 3.5% risk-free rate.
• Tax rate = 35%.
Part 1: Compute the cost of debt
Part 2: Compute the
Part 3: Compute the WACC. Assume that the weight on debt is 25% , the weight on
The WACC is ?
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