Adequate information: Bonds I outstanding BO I = 40,000 Coupon rate of Bond I CR BI = 4.90% Face value of Bond I FV BI = $1,000 Selling rate of Bond I R BI = 106.5% Price of Bond I PV BI = $1,065 Term duration of Bond I T BI = 15 years Number of compounding periods in a year N BI = 2 Bonds II outstanding BO II = 40,000 Coupon rate of Bond II CR BII = 0% Face value of Bond II FV BII = $10,000 Selling rate of Bond II R BII = 21.8% Price of Bond II PV BII = $2,180 Term duration of Bond II T BII = 30 years Number of compounding periods in a year N BII = 2 Common stock outstanding SO CS = 1,900,000 Beta of the stock β CS = 1.15 Current price per share P CS = $73 Preferred stock outstanding SO PS = 135,000 Current rate of preferred stock CR PS = 3.50% Current price per share P PS = $87 Risk-free rate R f = 3.60% Market risk premium R M = 7% Tax rate t = 23% To compute: WACC for the company S. Introduction: The Weighted average cost of capital (WACC) refers to the cost of capital from various sources such as common stocks, preferred stocks, bonds, etc.

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Chapter 13, Problem 17QAP

Summary Introduction

Adequate information:

Bonds I outstanding $BOI$ = 40,000

Coupon rate of Bond I $CRBI$ = 4.90%

Face value of Bond I $FVBI$ = $1,000

Selling rate of Bond I $RBI$ = 106.5%

Price of Bond I $PVBI$ = $1,065

Term duration of Bond I $TBI$ = 15 years

Number of compounding periods in a year $NBI$ = 2

Bonds II outstanding $BOII$ = 40,000

Coupon rate of Bond II $CRBII$ = 0%

Face value of Bond II $FVBII$ = $10,000

Selling rate of Bond II $RBII$ = 21.8%

Price of Bond II $PVBII$ = $2,180

Term duration of Bond II $TBII$ = 30 years

Number of compounding periods in a year $NBII$ = 2

Common stock outstanding $SOCS$ = 1,900,000

Beta of the stock $βCS$ = 1.15

Current price per share $PCS$ = $73

Preferred stock outstanding $SOPS$ = 135,000

Current rate of preferred stock $CRPS$ = 3.50%

Current price per share $PPS$ = $87

Risk-free rate $Rf$ = 3.60%

Market risk premium $RM$ = 7%

Tax rate $t$ = 23%

To compute: WACC for the company S.

Introduction: The Weighted average cost of capital (WACC) refers to the cost of capital from various sources such as common stocks, preferred stocks, bonds, etc.

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