Calculate for WACC
Not what you're looking for?
Please help with the following problem.
A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 per share. It has 2,000 bonds outstanding, each selling for $1,200. The bonds mature in 15 years, have a coupon rate of 10% and pay coupons annually. The firm's beta is 1.2, the risk free rate is 5%, and the market risk premium is 7%. The tax rate is 34%. Calculate the WACC?
Purchase this Solution
Solution Summary
This solution is comprised of a detailed explanation and calculation to find WACC.
Solution Preview
We need to calculate the yield to maturity of the bond by using the formula as follows: -
where B is the issued price
C is the coupon payment
r is the discount or yield rate
n is the period
Then, we can replace the information into the equation. Coupon payment is equal to $1,000 x 10% = 100)
The issued price of the bond is equal to
2,400,000 = 200,000 x [1 - 1 ] + 2,000,000
(1 + r)15 (1 + r)15
...
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.