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Finding the WACC

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Given the following information for Janicek Power Co., find the WACC. Assume the company's tax rate is 35%.

Debt: 5,000 8 % coupon bonds outstanding, $1000 par value, 10 years to maturity, selling for 96% of par; the bonds make semiannual payments.

Common stock: 60,000 shares outstanding, selling for $75 per share; beta is 1.10.

Preferred stock: 9,000 shares of 5.5 percent preferred stock outstanding, currently selling for $60 per share.

Market: 8% market risk premium and 6% risk-free rate.

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Solution Summary

WACC has been calculated using data on bonds, common stock and preferred stock.

Solution Preview

An approximation to the cost of debt= k = {C(1-T) + (F-P)/n}/(P+F)/2
C= coupon payment
T= Tax rate
F= Face Value
P= Current ...

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