National Products Inc. wants to calculate its weighted average cost of capital (WACC).The company’s CFO has collected the following information:• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannualcoupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for$1,000 par value.• The company’s preferred stock pays a fixed dividend of $2 per share, and the preferred stockprice is $20.• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.• The dividend is expected to grow at a constant rate of 6% per year.• The company has the target capital structure of $50 million in equity, $10 million in preferredstock and $20 million in debt.• The company’s tax rate is 40%.a. What is the company’s before-tax cost of debt?
National Products Inc. wants to calculate its weighted average cost of capital (WACC).
The company’s CFO has collected the following information:
• The company has a long-term bond outstanding, valued at $20 million. The bond is a semiannual
coupon bond with 6% coupon rate, and 5 years left to maturity. The current price is $959.45 for
$1,000 par value.
• The company’s
price is $20.
• The company’s common stock price is $32 a share, and recently paid a dividend of $2 a share.
• The dividend is expected to grow at a constant rate of 6% per year.
• The company has the target capital structure of $50 million in equity, $10 million in preferred
stock and $20 million in debt.
• The company’s tax rate is 40%.
a. What is the company’s before-tax cost of debt?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 4 images
