DecourcyW Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained...
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DecourcyW Inc. recently hired you as a consultant to estimatethe company’s WACC. You have obtained the followinginformation.
- The firm's noncallable bonds mature in 12 years. The bonds havea 10.50% annual coupon rate, a par value of $1,000, and a marketprice of $1,180.00. The bonds pay coupon payments semi-annually.The firm has 600,000 bonds outstanding.
- Common equity investors’ bond-yield risk premium is 5.5%.
- The risk-free rate is 1.85%, the market risk premium is 12.00%,and the common stock’s beta is 1.15.
- The firm has 40 million shares outstanding of common stocksthat sell at $27 per share. The firm just paid a dividend of $2.30per share, and the constant growth rate is expected to be5.75%.
- The firm would like to use the median (i.e. mid-point) of thethree methods (i.e. Bond-yield-risk premium method, CAPM, and DCF)to estimate the cost of equity, and it does not expect to issue anynew common stock.
- The firm has 6.5%, $100 par value preferred stocks. There are 3million shares outstanding. The preferred stock currently sells at$90 per share.
- The company’s tax rate is 21%.
What is its WACC? Do not round your intermediatecalculations.
DecourcyW Inc. recently hired you as a consultant to estimatethe company’s WACC. You have obtained the followinginformation.
- The firm's noncallable bonds mature in 12 years. The bonds havea 10.50% annual coupon rate, a par value of $1,000, and a marketprice of $1,180.00. The bonds pay coupon payments semi-annually.The firm has 600,000 bonds outstanding.
- Common equity investors’ bond-yield risk premium is 5.5%.
- The risk-free rate is 1.85%, the market risk premium is 12.00%,and the common stock’s beta is 1.15.
- The firm has 40 million shares outstanding of common stocksthat sell at $27 per share. The firm just paid a dividend of $2.30per share, and the constant growth rate is expected to be5.75%.
- The firm would like to use the median (i.e. mid-point) of thethree methods (i.e. Bond-yield-risk premium method, CAPM, and DCF)to estimate the cost of equity, and it does not expect to issue anynew common stock.
- The firm has 6.5%, $100 par value preferred stocks. There are 3million shares outstanding. The preferred stock currently sells at$90 per share.
- The company’s tax rate is 21%.
What is its WACC? Do not round your intermediatecalculations.
Answer & Explanation Solved by verified expert
3.7 Ratings (484 Votes)
WACC weight of debt cost of debt weight of preferred stock cost of preferred stock weight of equity cost of equity market value of debt bonds outstanding price per bond 600000 1180 708000000 market value of preferred stock shares outstanding price per share 3 million 90 270000000 market value of equity shares outstanding price per share 40 million 27
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