Weighted-Average Cost of Capital (WACC) Below is information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond to the following three questions:Required1. Micro Advantage issued a $5,000,000 par value, 20-year bond a year ago at 98 (i.e., 98% of par value)with a stated rate of 9%. Today, the bond is selling at 110 (i.e., 110% of par value). If the firm’s taxbracket is 30%, what is the current after-tax cost of this debt, rounded to 2 decimal places?2. Micro Advantage has $5,000,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par value of $25 and pays a $3 dividend per year. The current market priceis $30 per share. The firm’s tax bracket is 30%. What is the after-tax cost of the preferred stock, roundedto 2 decimal places?3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has50,000 shares of common stock outstanding that has a par value of $10 per share and a current marketprice of $170 per-share. The expected after-tax market return on the firm’s common equity is 20%.What is Micro Advantage’s weighted-average cost of capital (WACC), rounded to 2 decimal places?
Weighted-Average Cost of Capital (WACC) Below is information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond to the following three questions:
Required
1. Micro Advantage issued a $5,000,000 par
with a stated rate of 9%. Today, the bond is selling at 110 (i.e., 110% of par value). If the firm’s tax
bracket is 30%, what is the current after-tax cost of this debt, rounded to 2 decimal places?
2. Micro Advantage has $5,000,000
is $30 per share. The firm’s tax bracket is 30%. What is the after-tax cost of the preferred stock, rounded
to 2 decimal places?
3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has
50,000 shares of common stock outstanding that has a par value of $10 per share and a current market
price of $170 per-share. The expected after-tax market return on the firm’s common equity is 20%.
What is Micro Advantage’s weighted-average cost of capital (WACC), rounded to 2 decimal places?
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