WACC Question Firms Finance
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A firm is financed with the following securities
ï?§ Weight of common stock in the capital structure is 40%, beta=1.2 (risk free rate=6% and market return = 10%)
ï?§ Weight of corporate bond in the capital structure is 50%, 20-year bond, face value=$1,000, market price per bond = $900, and annual coupon rate = 6%. (Assume annual coupon payment)
ï?§ Weight of preferred stock in the capital structure is 10%, Price=$30 per share, fixed dividend payment = $3.00 per share.
ï?§ Corporate tax rate is flat 40%.
What is the weighted average cost of capital (WACC) of this firm?
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Solution Summary
The expert examines WACC questions for a firms finance.
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WACC = Proportion of Debt X After tax cost of debt + Proportion of preferred stock X cost of preferred stock + Proportion of common stock X cost of common stock
We are given the weights which are the proportions
We calculate the cost as below
1. Equity ...
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