1.GE has 20,000 bonds outstanding with a 7% coupon rate, paid semiannual. There are 20 years...

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1.GE has 20,000 bonds outstanding with a 7% coupon rate, paidsemiannual. There are 20 years left to maturity and have a marketprice of 990.00 (face value 1000). The company also has 700,000shares outstanding and currently sell at $32 a share. GE has a betaof 1.09. You expect the market risk premium to be 9% and the riskfree rate is currently 2%. Ge also has 200,000 shares of preferredstock which pays an annual dividend of $5. The preferred stock iscurrently trading at $29 a share. Assuming a 21% tax rate, what isthe WACC?
2. You need to raise one billion dollar for a new project. JPMorgan states that they will charge you a 7.5% flotation fee onequity, and a 4.5% flotation fee on debt. If you don’t want toalter the company’s capital structure, which is currently aDebt-to-Equity Ratio of 0.5, how much do you need to raise so thatyou can fund your project?

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Answer 1 Cost of debt Face value of bond 1000 Market price 990 Semiannual coupon 1000 72 35 Time to maturity 20 years 40 semiannual periods To get yield we use RATE function of excel RATE nper pmt pv fv type RATE 40 35 990 1000 0 35472 Yearly yield 35472 2 70943 See Answer

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1.GE has 20,000 bonds outstanding with a 7% coupon rate, paidsemiannual. There are 20 years left to maturity and have a marketprice of 990.00 (face value 1000). The company also has 700,000shares outstanding and currently sell at $32 a share. GE has a betaof 1.09. You expect the market risk premium to be 9% and the riskfree rate is currently 2%. Ge also has 200,000 shares of preferredstock which pays an annual dividend of $5. The preferred stock iscurrently trading at $29 a share. Assuming a 21% tax rate, what isthe WACC?2. You need to raise one billion dollar for a new project. JPMorgan states that they will charge you a 7.5% flotation fee onequity, and a 4.5% flotation fee on debt. If you don’t want toalter the company’s capital structure, which is currently aDebt-to-Equity Ratio of 0.5, how much do you need to raise so thatyou can fund your project?