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Finding the WACC

Given the following information for Bellevue Power Co., the WACC is percent. Assume the company's tax rate is 34 percent. (Do not include the percent sign (%). Round your answer to 2 decimal places, e.g. 32.16.)

4,500 5.5 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 102 percent of par; the bonds make semiannual payments.

Common stock:
99,000 shares outstanding, selling for $55 per share; the beta is 1.15.

Preferred stock:
13,500 shares of 5 percent preferred stock outstanding, currently selling for 104 per share.

6 percent market risk premium and 4.5 percent risk-free rate.

2. First, find the market value for each type of financing by multiplying the shares outstanding by their market prices.

3. Be careful in computing the market value of debt.

4. Determine the capital structure weights for each type of financing.

5. Use the appropriate approach for finding the Cost of Equity. This will depend upon the information given to you in the problem.

6. Find the Cost of Debt (don't forget about the taxes).

7. Find the Cost of Preferred Stock (remember, preferred stock is like a perpetuity).

8. Use the WACC formula to solve the problem.

Solution Summary

The solution explains how to calculate the WACC