Inzaghi Company recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The company has noncallable bonds with $1,000 face value and coupon rate of 10% (paid semi-annually). The bonds mature in 4 years, and have current price of $1,140.  (2) The company’s tax rate is 30%. (3) The current price of the company’s stock is $80.00 per share. Dividends are expected to grow at 5% indefinitely and the most recent dividend paid by the company was $2.75 per share. (4) The target capital structure of the company consists of 41.5% debt and the balance is common equity.   (5) The company is not planning to issue any new common stock. What is Inzaghi Company’s WACC?   ** You must explain your approach in writing in four lines. No credit is given without explanation.

Question

Inzaghi Company recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The company has noncallable bonds with $1,000 face value and coupon rate of 10% (paid semi-annually). The bonds mature in 4 years, and have current price of $1,140.  (2) The company’s tax rate is 30%. (3) The current price of the company’s stock is $80.00 per share. Dividends are expected to grow at 5% indefinitely and the most recent dividend paid by the company was $2.75 per share. (4) The target capital structure of the company consists of 41.5% debt and the balance is common equity.   (5) The company is not planning to issue any new common stock. What is Inzaghi Company’s WACC?

 

** You must explain your approach in writing in four lines. No credit is given without explanation.

 

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