Calculating the Weighted Average Cost of Capital (WACC)

Based on the information below, calculate the weighted average cost of capital.

Great Corporation has the following capital situation.
Debt: One thousand bonds were issued five years ago at a coupon rate of 8%. They had 25-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 39%
Preferred stock: Two thousand shares of preferred are outstanding, each of which pays an annual dividend of $7.50. They originally sold to yield 15% of their $50 face value. They're now selling to yield 8%.
Equity: Great Corp has 133,000 shares of common stock outstanding, currently selling at $12.48 per share. Dividend expected for next year is $.80 and the growth rate is 6%.

Let us calculate current value of bond.
Tax Rate=T=39%
Required rate of return=rd=9%
Coupon payment=C=1000*8%=$80
Number of coupon payments left=n=20
Maturity amount of bond=M=Face Value=$1000
Fair price of a bond is given as
Current price of bond=C/r*(1-1/(1+r)^n)+M/(1+r)^n
...

Solution Summary

Solution depicts the steps to calculate the cost of individual components of capital. It also estimates the weighted average cost of capital(WACC) in the given case.

... is comprised of a detailed explanation to calculate WACC. I'm learning how to solve weighted average cost of capital... variables to use when calculating the WACC. ...

Calculate the weighted average cost of capital (WACC). ... The solution calculates the weighted average cost of capital (WACC) under different scenarios. ...

... Given the following information, calculate the firms weighted average cost of capital, ie ... earnings for the equity funding, then the WACC can be calculated). ...

...Calculate the firm's weighted average cost of capital (WACC). ...Calculate the firm's weighted average cost of capital (WACC). 1) After-tax Cost of Debt: ...

... the current maturity piece 2) Calculated the present ... equity to the schedule, including calculating the equity cost of capital 4) Calculate the portion ...