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    Calculating WACC in the given case

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    What is the weighted average cost of capital if:

    Tax rate is 34%

    A company has 150,000 shares of common stock outstanding with a market price of $40 per share
    An annual dividend of $1.50 was paid last month
    Dividend growth rate is 5%

    There are 5,000 bonds outstanding with a $1000 face value per bond
    bonds have a 10% coupon rate
    bonds mature in 6 years
    bonds are currently selling at 85% face value.

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    Solution Preview

    Please refer attached file for better clarity of functions used in MS Excel.

    First let us calculate weights of different components of capital.
    Market Value of common stock=Mc=40*150000=$6,000,000.00
    Price od a bond=85% of face value=1000*85%=$850
    Market Value of ...

    Solution Summary

    Solution calculates the Weighted Average Cost of Capital in the given case.