You are given the following information for Watson Power Co. Assume the company’s tax rate is...

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Finance

You are given the following information for Watson Power Co.Assume the company’s tax rate is 25 percent.
  Debt:
15,000 6.4 percent coupon bonds outstanding, $1,000 par value,28 years to maturity, selling for 106 percent of par; the bondsmake semiannual payments.
  Common stock: 480,000 shares outstanding, selling for $66 per share; the betais 1.17.
  Preferred stock:
21,000 shares of 4.2 percent preferred stock outstanding,currently selling for $87 per share. The par value is $100 pershare.
  Market: 5 percent market risk premium and 5.3 percent risk-freerate.

Answer & Explanation Solved by verified expert

3.8 Ratings (366 Votes)

WACC Weighted average cost of capital calculations i Cost of debt YTM after tax YTM Coupon F M n F M 2 Here F Face value 1000 M Market price 1000 106 1060 Tax rate 25 or 025 n period 28 years 2 56 semi annual period Coupon semi annual Face value Coupon rate 612 months Coupon 1000 64 612 months 32 Now put the values into formula YTM 32 1000 1060 56 See Answer

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Transcribed Image Text

You are given the following information for Watson Power Co.Assume the company’s tax rate is 25 percent. Debt:15,000 6.4 percent coupon bonds outstanding, $1,000 par value,28 years to maturity, selling for 106 percent of par; the bondsmake semiannual payments. Common stock:480,000 shares outstanding, selling for $66 per share; the betais 1.17. Preferred stock:21,000 shares of 4.2 percent preferred stock outstanding,currently selling for $87 per share. The par value is $100 pershare. Market:5 percent market risk premium and 5.3 percent risk-freerate.

Debt:	15,000 6.4 percent coupon bonds outstanding, $1,000 par value,28 years to maturity, selling for 106 percent of par; the bondsmake semiannual payments.

Common stock:	480,000 shares outstanding, selling for $66 per share; the betais 1.17.

Preferred stock:	21,000 shares of 4.2 percent preferred stock outstanding,currently selling for $87 per share. The par value is $100 pershare.

Market:	5 percent market risk premium and 5.3 percent risk-freerate.