Question

Asked May 4, 2019

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Given the following information for Watson Power Co., Find the WACC. Assume the company’s tax rate is 35 percent.

Debt: 10,000 6.4 percent coupon bonds outstanding. $1,000 par value, 25 years to maturity, selling for 108 percent of par, the bonds make semiannual payments.

Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15.

Preferred stock: 35,000 shares of 3.5 percent preferred stock outstanding, currently selling for $72 per share

Market: 7 percent market risk premium and 3.2 percent risk-free rate.

Step 1

**Calculation of WACC:**

Step 2

**Excel Workings:**

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