Corporate Finance
Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 13, Problem 17QAP
Summary Introduction

Adequate information:

Bonds I outstanding BOI = 40,000

Coupon rate of Bond I CRBI = 4.90%

Face value of Bond I FVBI = $1,000

Selling rate of Bond I RBI = 106.5%

Price of Bond I PVBI = $1,065

Term duration of Bond I TBI = 15 years

Number of compounding periods in a year NBI = 2

Bonds II outstanding BOII = 40,000

Coupon rate of Bond II CRBII = 0%

Face value of Bond II FVBII = $10,000

Selling rate of Bond II RBII = 21.8%

Price of Bond II PVBII = $2,180

Term duration of Bond II TBII = 30 years

Number of compounding periods in a year NBII = 2

Common stock outstanding SOCS = 1,900,000

Beta of the stock βCS = 1.15

Current price per share PCS = $73

Preferred stock outstanding SOPS = 135,000

Current rate of preferred stock CRPS = 3.50%

Current price per share PPS = $87

Risk-free rate Rf = 3.60%

Market risk premium RM = 7%

Tax rate t = 23%

To compute: WACC for the company S.

Introduction: The Weighted average cost of capital (WACC) refers to the cost of capital from various sources such as common stocks, preferred stocks, bonds, etc.

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