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Consider the following information for Watson Power Co.:      Debt: 4,500 8.5 percent coupon bonds outstanding, $1,000 par...

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Finance

Consider the following information for Watson Power Co.:

  

  Debt:4,500 8.5 percent coupon bonds outstanding, $1,000 par value,20 years to maturity, selling for 102 percent of par; the bondsmake semiannual payments.
  Common stock:103,500 shares outstanding, selling for $55 per share; the betais 1.09.
  Preferred stock:13,500 shares of 7.5 percent preferred stock outstanding,currently selling for $104 per share.
  Market:10.5 percent market risk premium and 7.5 percent risk-freerate.

  

Assume the company's tax rate is 31 percent.

     

Find the WACC.

Multiple Choice

  • 12.74%

  • 12.34%

  • 13.35%

  • 12.24%

  • 12.44%

Answer & Explanation Solved by verified expert
3.9 Ratings (693 Votes)
Answer is 1234 Debt Number of bonds outstanding 4500 Face Value 1000 Current Price 102 1000 Current Price 1020 Value of Debt 4500 1020 Value of Debt 4590000 Annual Coupon Rate 850 Semiannual Coupon Rate 425 Semiannual Coupon 425 1000 Semiannual Coupon 4250 Time to Maturity 20 years Semiannual Period to Maturity 40 Let    See Answer
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Transcribed Image Text

Consider the following information for Watson Power Co.:    Debt:4,500 8.5 percent coupon bonds outstanding, $1,000 par value,20 years to maturity, selling for 102 percent of par; the bondsmake semiannual payments.  Common stock:103,500 shares outstanding, selling for $55 per share; the betais 1.09.  Preferred stock:13,500 shares of 7.5 percent preferred stock outstanding,currently selling for $104 per share.  Market:10.5 percent market risk premium and 7.5 percent risk-freerate.  Assume the company's tax rate is 31 percent.     Find the WACC.Multiple Choice12.74%12.34%13.35%12.24%12.44%

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