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Remaining Time: 1 hour, 41 minutes, 23 seconds Question Completion Status: A Moving to another question will save this response Question 44 of 55 Question 44 10 points Save Answer Raymond Mining Corporation has 10.1 million shares of common stock outstanding, 450,000 shares of 5% 5100 par valse preferred to outstanding, and 175,000 7.50% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $19 per share and has a beta of 1.55, the preferred stock currently sells for $98 per share, and the bonds have 15 years to maturity and sell for 116% of par. The market risk premium is 8.9%, T-bills are yielding 4%, and Raymond Mining's tax is 3%. The YTM before taxes i 5.BBON What is the WACC? (Enter your answers in whole dollars. Omit sign in your response.)

tax is 38% and YTM before taces is 5.880%

Answer 1

111 X =PV(17,18,-19,-110) A B с D E F H K L M N o P O ه 3 4 5 5.88% 3.65% 5.88*(1-0.38) Cd 6 7 8 9 10 11 12 13 14 15 Rate Nper Pmt FV PV 2.94% 30 (152) $37.50 $1,160 $1,227.08 (Using PV function of excel with Rate=2.94% Nper=30, Pmt=-37.5, Fv=1160) Before tax Cost of Debt=YTM After tax cost of Debt =5.88%*(1-Tax Rate) Current price of bond: Semi annual yield=(5.88/2)%= Number of Semi annual periods to maturity Semi Annual Coupon Payment =1000*(7.5%/2) Payment at maturity=1000 116%= Current price of bond Cost of Preferred Stock: Selling price per share: Annual Dividend payment=(5%*100) Cost of Preferred Stock=5/98= Annnual Cost of Preferred Stock Required Return on Common Equity=Ce Cost of Equity as per CAPM Equation Cost of Equity=Rf+Beta*(Rm-Rf) RE=Risk free rate=4% Beta=1.55, Rm-Rf=Market Risk Premium=8.9% Cost of Equity =4+1.55*8.9= Cost of Equity Market Value of Capital Structure $98.00 $5.00 5.10% 5.10% 0.05102 Cp 16 17 18 19 20 21 22 23 24 25 17.80% 17.80% Ce

Се Md Mp Me M=Md+Mp+Me Wd=Md/M Wp-Mp/M We=Me/M Cost of Equity =4+1.55*8.9= 17.80% Cost of Equity 17.80% Market Value of Capital Structure Market Value of Bond $214,739,407 (1227.08*175000) Market Value of Preference shares $44,100,000 (98*450000) Market value of Equity $494,900,000 ($49*10.1million) Total Market value of Capital $753,739,407 Weight of Debt 0.2849 Weight of Preferred Stock 0.0585 Weight of Equity 0.6566 Weighted Average Cost of Capital (WACC)=Wd*Cd+We*Ce+Wp*Cp Debt Preferred Stock Equity Weight Cost 0.2849 0.0585 0.6566 SUM 13.02 3.65% 5.10% 17.80% Weighted Cost 1.04% 0.30% 11.68% 13.02% WACC