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 Summary
This solution provides calculations for finding the WACC.
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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 ...
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