You are given the following information on Parrothead Enterprises: Debt:9,400 6.6 percent coupon bonds outstanding, with 21 years to maturity and a quoted price of 105. These bonds pay interest semiannually and have a par value of $1,000. Common stock:245,000 shares of common stock selling for $64.90 per share. The stock has a beta of .94 and will pay a dividend of $3.10 next year. The dividend is expected to grow by 5.4 percent per year indefinitely. Preferred stock:8,400 shares of 4.7 percent preferred stock selling at $94.40 per share. The par value is $100 per share. Market:11.6 percent expected return, risk-free rate of 3.8 percent, and a 24 percent tax rate. Calculate the company's WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

Weighted Average Cost of Capital: It is the cost of capital of the business for raising capital…

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 8P

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You are given the following information on Parrothead Enterprises:

Debt:	9,400 6.6 percent coupon bonds outstanding, with 21 years to maturity and a quoted price of 105. These bonds pay interest semiannually and have a par value of $1,000.

Common stock:	245,000 shares of common stock selling for $64.90 per share. The stock has a beta of .94 and will pay a dividend of $3.10 next year. The dividend is expected to grow by 5.4 percent per year indefinitely.

Preferred stock:	8,400 shares of 4.7 percent preferred stock selling at $94.40 per share. The par value is $100 per share.

Market:	11.6 percent expected return, risk-free rate of 3.8 percent, and a 24 percent tax rate.

Calculate the company's WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

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