Question

Question 30 10 points Save Answer Raymond Mining Corporation has 8.7 million shares of common stock outstanding, 310.000 shares of 6% $100 par value preferred stock outstanding, and 147.000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, the preferred stock currently sells for $91 per share, and the bonds have 20 years to maturity and sell for 116% of par. The market risk premium is 7.5%, T-bills are yielding 5%, and Raymond Mining's tax is 30%. The YTM before taxes is 6.104%. What is the WACC? (Enter your answers in whole dollars. Omit % sign in your response.)

Answer 1

rate positively ..

	Rate of equity =
		Using CAPM rate of equity = Risk free rate + market risk premium * beta
					=5%+7.5%*1.35
					15.1250%
	Rate of debt (after tax)
	we have to use financial calculator to compute YTM
	Put in calcualtor
	PV		-1160
	FV		1000
	PMT	1000*7.5%/2	37.5
	N		40
	Compute I	3.05%
	YTM =		6.10%
	tax rate =		30%
	therefore rate of debt (after tax) =		4.27%
	rate of debt (after tax) =	4.27%
	rate of preferred stock = Annual dividend/Current price
			=6/91
			6.59%
Working for rest of question
Computation of Weight and WACC
			Market value			weight	Cost of capital	weight * cost
	Source
	equity		304500000	=8.7mil*35	60.51%	15.13%	9.15%
	debt		170520000	=147000*1000*116%	33.89%	4.27%	1.45%
	preferred stock	28210000	=310000*91	5.61%	6.59%	0.37%
			503230000					10.97%
WACC=	11%
Ans=	11