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ommon 500,000 shares outstanding, sellin ck: eferred 22,000 shares of 4.4 percent pre

ommon 500,000 shares outstanding, sellin ck: eferred 22,000 shares of 4.4 percent pre

Essentials Of Investments
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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You are given the following Information for Lighting Power Company. Assume the company's tax rate is 22 percent. 17,000 6.6 percent coupon bonds outstanding, $1,000 par value, 26 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. Debt: Common 500,000 shares outstanding, selling for $68 per share; the beta is 1.19. stock: 22,000 shares of 4.4 percent preferred stock outstanding, a $100 par value, currently selling for $89 per share. Preferred stock: Market: 7 percent market risk premlum and 5.5 percent risk-free rate. What is the company's WACC? (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC
Transcribed Image Text:You are given the following Information for Lighting Power Company. Assume the company's tax rate is 22 percent. 17,000 6.6 percent coupon bonds outstanding, $1,000 par value, 26 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. Debt: Common 500,000 shares outstanding, selling for $68 per share; the beta is 1.19. stock: 22,000 shares of 4.4 percent preferred stock outstanding, a $100 par value, currently selling for $89 per share. Preferred stock: Market: 7 percent market risk premlum and 5.5 percent risk-free rate. What is the company's WACC? (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC
Expert Solution
Step 1

WACC i.e. weighted average cost of capital is sum product of the wight of each component in capital structure and the cost of each component.

Cost of preferred stock is the preferred dividend yield on the market value of preferred stock.

Cost of debt is the yield to maturity or the internal rate of return offered by bonds cash flows.

Cost of equity is calculated by capital asset pricing model.

 

 

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