Purchase Solution

# WACC: Wild Widgets, Inc.

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If Wild Widgets, Inc. were an all-equity company it would have a beta of 1.55. The company has a target debt-equity ratio of 0.4. The expected return on the market portfolio is 12.9 percent, and Treasury bills currently yield 5.9 percent. The company has one bond issue outstanding that matures in 23 years and has an 6.8 percent coupon rate. The bond currently sells for \$984. The corporate tax rate is 30 percent.

Question #1:
What is the company's cost of debt? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Cost of debt:_____%

Question # 2:
What is the company's cost of equity? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Cost of equity:_____%

Question # 3:
What is the company's weighted average cost of capital? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Weighted average cost of capital:______%

##### Solution Summary

The expert examines wild widgets, inc WACC.

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Cost of Debt
INPUT PARAMETERS
Parameter Value
F = Face value of bond \$1,000
n = No. of coupon payments per year 1 per year
P= Market value of the bond \$984
c = Coupon interest rate 6.80%
n = Time to maturity 23 years
t = tax rate ...

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