
FINANCIAL ACCOUNTING: TOOLS LL W/ ACCES
9th Edition
ISBN: 9781119493648
Author: Kimmel
Publisher: WILEY
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Solve a and b. General accounting
General accounting question
Complete the table given below and compute the WACC from theinformation provided after the table template.
capital component
market value
weight
cost of capital
weight x cost of capital
debt
common stock
preferred shares
The following balance sheet extract relates to the Spread-Out AirlinesLtd.Bonds Payable $1,000,000Preferred Stock $2,000,000Common Stock $3,000,000
Additional Information:1. The bonds are 8%, annual coupon bonds, with 9 years tomaturity and are currently selling for 90% of par.2. The company’s common shares which have a book value of $25per share are currently selling at $20 per share.3. The preferred shares are 5% preferred shares with a bookvalue of $100 per share. These shares are currentlyselling at $80 per share.4. The company has an equity beta of 1.35 and the current Treasury bill rate is 3.0%. The market risk premium is1.5%5. The company’s tax rate is 30%.
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