Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $71,...

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Dinklage Corp. has 5 million shares of common stock outstanding.The current share price is $71, and the book value per share is$10. The company also has two bond issues outstanding. The firstbond issue has a face value of $80 million, a coupon rate of 4percent, and sells for 96 percent of par. The second issue has aface value of $65 million, a coupon rate of 3 percent, and sellsfor 108 percent of par. The first issue matures in 20 years, thesecond in 9 years.
Suppose the most recent dividend was $4.35 and the dividendgrowth rate is 4.6 percent. Assume that the overall cost of debt isthe weighted average of that implied by the two outstanding debtissues. Both bonds make semiannual payments. The tax rate is 22percent. What is the company’s WACC? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)

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4.2 Ratings (497 Votes)

MV of equityPrice of equitynumber of shares outstanding MV of equity715000000 355000000 MV of Bond1Par valuebonds outstandingage of par MV of Bond1100080000096 76800000 MV of Bond2Par valuebonds outstandingage of par MV of Bond2100065000108 70200000 See Answer

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Dinklage Corp. has 5 million shares of common stock outstanding.The current share price is $71, and the book value per share is$10. The company also has two bond issues outstanding. The firstbond issue has a face value of $80 million, a coupon rate of 4percent, and sells for 96 percent of par. The second issue has aface value of $65 million, a coupon rate of 3 percent, and sellsfor 108 percent of par. The first issue matures in 20 years, thesecond in 9 years.Suppose the most recent dividend was $4.35 and the dividendgrowth rate is 4.6 percent. Assume that the overall cost of debt isthe weighted average of that implied by the two outstanding debtissues. Both bonds make semiannual payments. The tax rate is 22percent. What is the company’s WACC? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)