You are given the following information for Cleen Power Co. Assume the company’s tax rate is 30 percent. Debt:6,000 7.9 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:510,000 shares outstanding, selling for $69 per share; the beta is 1.12.  Market:10 percent market risk premium and 5.9 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC              %

Question
Asked Nov 24, 2019
1 views

You are given the following information for Cleen Power Co. Assume the company’s tax rate is 30 percent.
 

Debt:

6,000 7.9 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: 510,000 shares outstanding, selling for $69 per share; the beta is 1.12.
   
Market: 10 percent market risk premium and 5.9 percent risk-free rate.

 
What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 
WACC              %

 
 
 
check_circle

Expert Answer

Step 1

Calculation of WACC:

The WACC is 15.23%.

Excel Spreadsheet:

...
help_outline

Image Transcriptionclose

В с Е G А Price Market Value Weight $6,480,000 $35,190,000 $41,670,000 Weighted Return 1 Shares Rate 2 Debt 6,000 Common Stock 510,000 $1,080 $69 15.55% 7.21% 0.78% 14.44% 3 84.45% 17.10% 4 5 WACC 15.23%

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Capital Structure

Related Finance Q&A

Find answers to questions asked by student like you
question_answer

Q: I am currently working on some practice problems to study for a test and need help setting up and un...

A: 22 & 23.Calculate the expected returns and variance as follows:

question_answer

Q: Company has expected earnings of $4.8 per share for next year. The firm's ROE is 16%, and its earnin...

A: Present value of growth opportunities (PVGO) can be calculated as below:

question_answer

Q: Only need answers for parts d) and e). Please include calculations. XYZ company has the following ex...

A: Hi there, As per Q&A guidelines, we should answer the first question when multiple questions giv...

question_answer

Q: Circuit City Stores (CC) recently paid a $.24 dividend. The dividend is expected to grow at a 23.80 ...

A: Given that the recent dividend is $.24, current stock price is $8.76 and the dividend is expected to...

question_answer

Q: Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levere...

A: a.Number of Outstanding Shares (Under Plan I) = 150,000 Number of Outstanding Shares (Under Plan II)...

question_answer

Q: Brandt Enterprises is expecting rapid growth for the next 2 years. They JUST PAID divident (D0) of $...

A: Hence, Dividend after year 1 (D1) is 1.875, which is determined by multiplying the initial dividend ...

question_answer

Q: Calculate the finance charge for a credit card that has the given average daily balance and interest...

A: Calculation of Finance Charge:The finance charge is $2.05.Excel Spreadsheet:

question_answer

Q: To what extent does the company’s bond issuance policies support or hinder their strategies? For exa...

A: Bond:A bond is a loan that has a fixed interest or coupon rate. The investors who invest in bond get...

question_answer

Q: Estimate the Cost of Capital for Company XYZ based on the information below. $50.00 $1.60 Stock pric...

A: Cost of equity is calculated using the Capital Asset Pricing Model.

question_answer

Q: Camber Corporation has to decide if they can finance purchasing 10 new machines for all their manufa...

A: Part 1:We need to determine if the company will will have sufficient amount fund to pay the loans fo...

question_answer

Q: Dan is planning to buy a new home that costs ​$130000 Find the following if Dan make a​ 5% downpayme...

A: The down payment is the initial payment made by the buyer when anything is bought on credit.

question_answer

Q: Karen and Mike pay $700 and $900 a year on seperate insurance. If they used same company save 10%. W...

A: Calculate the annual savings as follows:

question_answer

Q: Market Top Investors, Inc., is considering the purchase of a $350,000 computer with an economic life...

A: The initial investment cost is $350,000.According to straight line depreciation, the annual deprecia...

question_answer

Q: Based on the ratio analysis below, in which company would you be willing to invest and why? RATIO...

A: Ratio analysis is an important which an investor can use to analyze the better investment opportunit...

question_answer

Q: Given the following information below for Stock A, calculate its standard deviation 6. Where: wwwww ...

A: Expected return can be defined as the return which an investor expects to be generate on a project o...

question_answer

Q: A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north o...

A: a)It is given that,Cost of equipment is $900,000.Installation cost is $165,000. So, the total cost w...

question_answer

Q: Company ABC just sold their most profitable division for $100 million in cash. The company has a mar...

A: A)(i) Initial Investment = $100 MillionPayoff is given for the next year with different probabilitie...

question_answer

Q: What is 60 divided by 360 in decimal form

A: The decimal form is 0.166666666666667.Excel Spreadsheet:

question_answer

Q: M6-17 Explaining Revenue Recognition and Bundled Sales A.J. Smith Electronics is a retail consumer e...

A: a.A.J. Smith should recognize revenue on the extended warranty contracts proportionately during the ...

question_answer

Q: Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial f...

A: a.)Computation of net cash flows of year 0 to year 3:

question_answer

Q: Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm curren...

A: Calculation of weighted average cost of capital for all divisions:WACC of A is 11.06%WACC of B is 12...

question_answer

Q: How do firms use current liabilities, including accounts payable, accruals, lines of credit, commerc...

A: Current liabilities are the short-term liabilities or financial obligations which are expected to pa...

question_answer

Q: Three procurement methods include:(a) Competitive proposals, contracting by negotiation, and sealed ...

A: Procurement: It might be a straightforward buying course of action with a supplier; it might likewis...

question_answer

Q: Number 5 and 6

A: 5) The IRR is the rate where NPV equals to zero.Using the goal seek method, IRR is identified as 16....

question_answer

Q: Is there an easily identifiable debt-equity ratio that will maximize the value of the firm?support  ...

A: No, it is not easy to identify a debt-equity ratio, which would increase the firm’s value.

question_answer

Q: You own $25,080 of Human Genome stock that has a beta of 3.72. You also own $13,376 of Frozen Food E...

A: To determine the portfolio beta we first need to calculate the weights of each investment.

question_answer

Q: A bond has an annual 8 percent coupon rate, a maturity of 10 years, a face value of $1,000, and make...

A: The formula to calculate price of bond is given below,

question_answer

Q: A particular security's default risk premium is 3.70 percent. For all securities, the inflation risk...

A: Calculation of Equilibrium Rate of Return:The equilibrium rate of return is 11.00%.Excel Spreadsheet...

question_answer

Q: I need help woring this problem and how to set up on excel too.

A: Calculate the Net present value as follows:At 5% discount rate:

question_answer

Q: Consider a project with the following information: Initial fixed asset investment = $540,000; straig...

A: Given that the company is planning for investing in a 4 year project, the initial investment is $540...

question_answer

Q: Earthly Foods just paid its annual dividend of $1.45 a share. The firm recently announced that all f...

A: We need to use dividend growth model to solve the question. It is a valuation model that determines ...

question_answer

Q: Today, Andrew sold 3,600 shares of Colts stock for $26.60 per share. Andrew paid $101,124 for the 3,...

A: Calculate the total return as follows:

question_answer

Q: How much money do you need to deposit in a lump sum in a savings account that pays 9% interest compo...

A: Calculate the lumpsum amount as follows:

question_answer

Q: Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loos...

A: The initial investment cost of equipment is $450,000.Cash outflow at the beginning of project is cal...

question_answer

Q: Spacefood Products will pay a dividend of $2.15 per share this year. It is expected that this divide...

A: Expected Divided (D1) = $2.15Cost of Equity (Ke) = 14%Growth Rate (g) = 6% Calculation of Current Va...

question_answer

Q: ASDF Corporate Income Statement Current Year Units Sold 100,000 $37.84 $3, 784,000 $1,284,000 Unit P...

A: Hence, Combined leverage has a degree of 1.28, which is determined by dividing the difference of sal...

question_answer

Q: Read the case “Langtry Falls Expansion Plan”. After reading the article critically discuss and evalu...

A: Langtry Falls Expansion Plan:Langtry falls expansion plan is a case study that is presented by Harva...

question_answer

Q: Why dont dealers quote bid and ask prices for futures contracts

A: Meaning of” bid and ask” price:Bid and ask price indicates the best possible price of a security at ...

question_answer

Q: Health insurance policy pays 65% of physical therapy cost after deductible of $200. In contrast HMO ...

A: Calculation of Amount Saved with HMO:The amount saved with HMO is $155.Excel Spreadsheet:

question_answer

Q: $10,000 is borrowed at 10% a year interest for five years. At the end of each year, the borrower pay...

A: Computation:

question_answer

Q: juanita's steak house has 12,000 of debt outstanding that is selling at par and has a coupon rate of...

A: Computation of PV of the tax shield:Hence, the present value of the tax shield is $4,080.

question_answer

Q: Consider a project with the following information: Initial fixed asset investment = $515,000; straig...

A: The initial fixed investment cost is $515,000. So, annual depreciation will be ($515,000 ÷ 4) = $128...

question_answer

Q: 2. You expect your mutual fund portfolio to yield and 8% return and anticipate inflation to be 2%. C...

A: Calculation of inflation-adjusted return:Answer:Inflation-adjusted return is 2%

question_answer

Q: What is the present value of an investment that will pay $1,000 in one year's time, and $1,000 every...

A: Calculation of Present value of perpetuity:Answer:The present value of the investment is $12,500

question_answer

Q: Why are derivatives considered riskier than other financial instruments?

A: Financial Instruments:Financial instruments are the monetary contracts and assets that can be easily...

question_answer

Q: You have just celebrated your twentieth birthday and you believe you will spend Rs 120,000 a year fo...

A: PV of annuity is as follows:

question_answer

Q: In the capital asset pricing model, the general risk preferences of investors in the marketplace are...

A: Capital asset pricing model is used to calculate the expected returns on the investment made by the ...

question_answer

Q: A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north o...

A: Effects of environmental factors:A good example of external costs is the adverse environmental impac...

question_answer

Q: J'Mal wishes to retire at age 65. At the age of 21, he begins depositing $35 per month into an accou...

A: A deposit of $35 is made each month for 44 years (65 years – 21 years) at a rate of 8.5% AAPR.Calcul...

question_answer

Q: How is that a currency futures contracts eliminate the possibilty of gaining a windfall profit from ...

A: As the futures or forward contract guards the buyer of the contract from the unfavourable exchange r...