Given the following information for Magrath Power Co., find the WACC. Assume the company’s tax rate is 35%. Debt: 10,000 6.4% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108% of par; the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15. Preferred stock: 35,000 shares of 3.5% preferred stock outstanding, currently selling for $72 per share. Market: 7% market risk premium and 3.2% risk-free rate.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Given the following information for Magrath Power Co., find the WACC. Assume the company’s tax rate is 35%. Debt: 10,000 6.4% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108% of par; the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15.
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