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Pare Food is interested in calculating its weighted average cost of capital (WACC).  The company’s CFO has collected the following information: The target capital structure consists of 40 percent debt and 60 percent common stock. The company has 20-year noncallable bonds with a par value of $1,000, a 9 percent annual coupon, and is now selling 92 1/4. Equity flotation costs are 2 percent. The company’s common stock has a beta of 0.8. The risk-free rate is 5 percent. The market risk premium is 4 percent. The company’s tax rate is 40 percent. Compute WACC

Pare Food is interested in calculating its weighted average cost of capital (WACC).  The company’s CFO has collected the following information: The target capital structure consists of 40 percent debt and 60 percent common stock. The company has 20-year noncallable bonds with a par value of $1,000, a 9 percent annual coupon, and is now selling 92 1/4. Equity flotation costs are 2 percent. The company’s common stock has a beta of 0.8. The risk-free rate is 5 percent. The market risk premium is 4 percent. The company’s tax rate is 40 percent. Compute WACC

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
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Pare Food is interested in calculating its weighted average cost of capital (WACC).  The company’s CFO has collected the following information:

  • The target capital structure consists of 40 percent debt and 60 percent common stock.
  • The company has 20-year noncallable bonds with a par value of $1,000, a 9 percent annual coupon, and is now selling 92 1/4.
  • Equity flotation costs are 2 percent.
  • The company’s common stock has a beta of 0.8.
  • The risk-free rate is 5 percent.
  • The market risk premium is 4 percent.
  • The company’s tax rate is 40 percent.

Compute WACC

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