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    Calculations for Finding the WACC

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    Find the WACC for a company with a tax rate of 35%

    Debt: 5,000 7% coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 92% of par, the bonds make semiannual payments.

    Common Stock: 100,000 shares outstanding, selling for $57 per share, the beta is 1.15

    Preferred Stock: 13,000 shares of 7% preferred stock outstanding, currently selling for $104 per share.

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

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    Solution Preview

    Cost of equity:

    rs = rRF + (RPM)bi
    = 6% + (8%) 1.15
    = 15.2%

    Find before interest rate:

    Need to find YTM, which is rd.

    Coupon rate, since it is semiannualy, we need to divide 7/2 = 3.5%
    N = 20 years ...

    Solution Summary

    This solution provides calculations for finding the WACC.