Question

- MUVIU GUYS Wide Sise. Question 27 10 points Save Antwer 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 well for 116% of par. The market risk premium is 7.3%, T-bills are yielding 5%, and Raymond Mining's tax is 30%. The YTM before taxes is 6.104% What is the WACCP (Enter your answers in whole dollars. Omit sign in your response.)

Answer 1

Calculation of Market value of the Company Market value of the company = market value of common stock + market value of preferred stock + market value of bonds Market value of the company = (8,700,000 * $35) + (310,000 * $91) + (147,000 * $1000 * 116%) Market value of the company = $304,500,000 + $28,210,000+ $170,520,000 = $503,230,000 Weight or proportion of common stock = $304,500,000/$503,230,000 = 60.51% Weight or proportion of Preferred stock = $28,210,000/$503,230,000 = 5.61% Weight or proportion of bonds = $170,520,000/$503,230,000 = 33.88% Calculation of Cost of debt Cost of debt = YTM (1-tax rate) Cost of debt = 6.104 (1-0.3) = 4.2728% Cost of common stock = Risk free rate + (Market risk premium * Beta) Cost of common stock = 5% + (7.5% *1.35) = 15.125% Cost of preferred stock = Dividend/Market price * 100 = 6/91*100 = 6.593% WACC = (Weight of debt * cost of debt + weight of equity * cost of equity + weight of preferred stock cost of preferred stock) WACC = (33.88% * 4.2728% + 60.51% * 15.125% + 5.61% *6.593%) = 10.969