Given the following information of JB Inc., Damieon is looking for some conditions of the company. •...

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Finance

Given the following information of JB Inc., Damieon is lookingfor some conditions of the company.
• A company has a target capital structure of 30% debt, 20%preferred stock, and 50% common equity.
• The company’s bonds with face value of $1,000 pay a 10%coupon (semiannual), mature in 15 years, and sell for$751.82.
• A company’s preferred stock is selling for $60. It pays adividend of $4.50 per year and has a perpetual life.
• The company stock beta is 1.9.
• Risk-free rate is 10%, and market risk premium is 5%.
• The company is a constant-growth firm that just paid adividend of $4, sells for
$52 per share, and has a growth rate of 4%.
• The company’s marginal tax rate is 30%.
Calculate the weighted average cost of capital (WACC).

Answer & Explanation Solved by verified expert

4.1 Ratings (849 Votes)

i Cost of bond YTM YTM Coupon F Pn F P 2 Here F Face value 1000 P Price 75182 n period 15 years 2 3 Tax rate 30 or 030 Coupon Face value Coupon Coupon 1000 10 612 months 30 Now YTM 30 1000 75182 30 1000 75182 2 YTM 30 827 87591 YTM 3827 87591 YTM semi annual 00437 YTM annually 1 YTM semi annuallyn 1 n compounding per year See Answer

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