WACC for Peter's Audio Shop
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Peter's Audio Shop has a cost of debt of 7 percent, a cost of equity of 11 percent, and a cost of preferred stock of 8 percent. The firm has 104,000 shares of common stock outstanding at a market price of $20 a share. There are 40,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $500,000 and sells at 102 percent of face value. The company's tax rate is 34 percent.
What is the weighted average cost of capital for Peter's Audio Shop?
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Solution Summary
This solution provides the step-by-step calculations to determine the Weighted Average Cost of Capital (WACC).
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Market value of common stock = 104000*20=2,080,000
Market value of preferred stock ...
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