Peter's Audio has two bond issues outstanding. The first issue has a coupon rate of 7%, a par value of $2,000 per bond, matures in 20 years, has a total face value of $5 million, and is quoted as 105. The second issue has a coupon rate of 9%, a par value of $1,000 per bond, matures in 30 years, has a total face value of $10 million, and is quoted as 110. Both bonds pay interest semiannually. The firm has 105,000 shares of common stock outstanding at a market price of $22 a share with the cost of equity of 10.5%. There are 25,000 shares of 4.05%-preferred stock selling for $45 each with a face value of $100. The tax rate is 21%.   What is the weighted average cost of capital?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Peter's Audio has two bond issues outstanding. The first issue has a coupon rate of 7%, a par value of $2,000 per bond, matures in 20 years, has a total face value of $5 million, and is quoted as 105. The second issue has a coupon rate of 9%, a par value of $1,000 per bond, matures in 30 years, has a total face value of $10 million, and is quoted as 110. Both bonds pay interest semiannually. The firm has 105,000 shares of common stock outstanding at a market price of $22 a share with the cost of equity of 10.5%. There are 25,000 shares of 4.05%-preferred stock selling for $45 each with a face value of $100. The tax rate is 21%.

 

What is the weighted average cost of capital?

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