Dinklage Corporation has 8 million shares of common stock outstanding. The current share price is $87, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $75 million, has a 10 percent coupon, and sells for 97 percent of par. The second issue has a face value of $50 million, has a 11 percent coupon, and sells for 105 percent of par. The first issue matures in 25 years, the second in 7 years. The most recent dividend was $5.9 and the dividend growth rate is 7 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company's WACC?
Dinklage Corporation has 8 million shares of common stock outstanding. The current share price is $87, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $75 million, has a 10 percent coupon, and sells for 97 percent of par. The second issue has a face value of $50 million, has a 11 percent coupon, and sells for 105 percent of par. The first issue matures in 25 years, the second in 7 years. The most recent dividend was $5.9 and the dividend growth rate is 7 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company's WACC?
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:Dinklage Corporation has 8 million shares of common stock outstanding. The current
share price is $87, and the book value per share is $6. The company also has two bond
issues outstanding. The first bond issue has a face value of $75 million, has a 10 percent
coupon, and sells for 97 percent of par. The second issue has a face value of $50
million, has a 11 percent coupon, and sells for 105 percent of par. The first issue matures
in 25 years, the second in 7 years.
The most recent dividend was $5.9 and the dividend growth rate is 7 percent. Assume
that the overall cost of debt is the weighted average of that implied by the two
outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35
percent.
What is the company's WACC?
Transcribed Image Text:Multiple Choice
O
O
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13.09%
10.34%
9.99%
20.33%
10.17%
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