The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company? Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 150,000 shares of 4 percent preferred stock with a current price of GH79, and a par value of GHC100. Common stock: 2,600,000 shares of common stock; the current price is GHC65 and the beta of the stock is 1.15. Market: the corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent.
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:
The Saunders Investment Bank has the following financing outstanding. What is the WACC for the company?
Debt: 60,000 bonds with a coupon rate of 6 percent and a current price quote of 109.5; the bonds have 20 years to maturity. 230,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity.
Common stock: 2,600,000 shares of common stock; the current price is GHC65 and the beta of the stock is 1.15.
Market: the corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 6 images
