The Sweet Dreams Candy Company has hired you to estimate its Weighted Average Cost of Capital. Management...

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Finance

The Sweet Dreams Candy Company has hired you to estimate itsWeighted Average Cost of Capital.
Management has provided you with the following information:
Current Debt: The company has180,000 bonds, par value $1000, selling at 95% of par. The bondshave a coupon rate of 3% and 15 years to maturity.
Common Stock: The company has3,750,000 shares of common selling for $62 per share. The bookvalue per share is $23. The stock has a beta of 1.2
Additional information: Thecompany has a tax rate of .35, the market risk premium is 7.5%, andthe risk-free interest rate is 2%.

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4.3 Ratings (701 Votes)

Solution WACC 728 Working Notes Common stock 3750000 shares Bond Face value No of bonds x par value 180000 x 1000 180000000 Current market share price 62 Bond is selling at 95 of par Total Market value of common stock E No of Common stock shares x Market price per share Total Market value of common stock E 3750000 shares x 62 Total Market value of common stock E 232500000 Total Market value of Bond D Total Face value of bond x of par at which bond is selling in market Total Market value of Bond D See Answer

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