HomeworkLib
Question

Given the following information for stellar corporation, find the WACC. Assume that the company`s tax rate...

Given the following information for stellar corporation, find the WACC. Assume that the company`s tax rate is 40%. COMMON STOCK:15 million shares outstanding selling for $5 per share;the beta is 1.05. PREFERRED STOCK: 5 million shares outstanding, selling for $4.5 per share pays $0.9 annually per share. DEBT:1 million 8% quarter coupon bonds outstanding $100 face value, 15 years to maturity, selling at par. MARKET: 6.5% market return and 4.5% risk-free rate.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Answer: a) x (b) Weighted Post-tayx Cost 2.51% 2.28% 2.50% 7.29% (2.51% + 2.28% + 2.50%) Maket Value Weight Source Cost Common 0.3797 6.60% Preferred 0.1139 20.00% Debt weight. Avg. Cost of Cap. (WACC) [0.3797 x 6.60%) [0.1139 x 20.00%) [0.5063 x 4.9459%) 0.5063 4.9459% Workings: Total market value million $75 $23 S100 $198 #of Maket Value Source Securities Price Weight (million) Common Preferred Debt $5.00 $4.50 $100 [15 x $5.00] [5 x $4.50] [1x$100] 0.3797 [$75 $198] 0.1139[$23/ $198] 0.5063 [$100 $198] 15 1 Firms market valueUsing CAPM, Cost of Equity Risk-free Rate[Beta x (Market Return - Risk-free Rare)] Risk-free Rate Beta Market Return Cost of Equity 45% 1.05 6.5% 6.60% 14.5% + [1.05 x (6.5%-4.5% Prefered dividend per share Price per prefered stock Cost of prefered stock 9 20.00% [$0.9 / $4.5] When compounded Monthly, Effective Annual Rate (EAR-Before tax cost of debt) (1+ APR/4)4-1 Annual Percentage Rate (APR) # of frequencies in a year Before-tax cost of debt Tax Rate After-tax cost of debt 8% 4 8.2432% 40% 4.9459% [(1+ 8%)4.1 1.082432-1-0.082432 8.2432%) 3.2432% x (1-40%) = 8.2432% x 60% = 4.9459%)

0 0
Add a comment
Know the answer?
Add Answer to:
Given the following information for stellar corporation, find the WACC. Assume that the company`s tax rate...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Given the following information for Stellar Corporation, find the WACC (weighted average cost of capital). Assume...

    Given the following information for Stellar Corporation, find the WACC (weighted average cost of capital). Assume that the company's tax rate is 40%. Common Stock: 15 million shares outstanding, selling for $5 per share; the beta is 1.05 Preffered Stock: 5 million shares outstanding, selling for $4.5 per share, pays $ 0.9 annually per share. Debt: 1 million 8% quarter coupon bonds outstanding, $100 face value, 15 years to maturity, selling at par. Market: 6.5% market return and 4.5% risk-free...

  • Find the WACC, assume that company's tax rate is 40% Common stock: 15 million shares outstanding,...

    Find the WACC, assume that company's tax rate is 40% Common stock: 15 million shares outstanding, selling for 5$ per share; thebeta is 1.05 Preffered Stock:5 million snares cutstanding, sallingfor $4.5 per share, pays $0.9 annually per share. Debt 1 million 8% quarters coupon bonds outstanding, $100 face value, 15 years to maturity, selling at Market: 6.5% market return and 4.5% risk-freerate.

  • Given the following information for Groto Corp. find the WACC. Assume the company's tax rate is...

    Given the following information for Groto Corp. find the WACC. Assume the company's tax rate is 40%. Bonds: 10,000 9% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 98% of par; the bonds make semi-annual payments. Common shares: 300,000 shares outstanding, selling for $40 per share: the beta is 0.95. Preferred shares: 55,000 shares of 6% preferred stock outstanding, currently selling for $100 per share. 10% market risk premium and 3% risk-free rate.

  • Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate...

    Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate is 21 percent. Debt: 50,000 bonds with a 4.8 percent coupon outstanding, $1,000 par value, 15 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. Common stock: 825,000 shares outstanding, selling for $72 per share; the beta is .99. Preferred 65,000 shares of 3.8 percent preferred stock outstanding, currently stock: selling for $60 per share. Assume par value is...

  • Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate...

    Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate is 21 percent. Debt: 20,000 bonds with a 6.8 percent coupon outstanding, $1,000 par value, 20 years to maturity, selling for 95 percent of par; the bonds make semiannual payments. Common stock: 625,000 shares outstanding, selling for $54 per share; the beta is 1.20. Preferred 45,000 shares of 2.8 percent preferred stock outstanding, currently stock: selling for $60 per share. Assume par value is...

  • Given the following information for Watson Power Co., find the WACC . Assume the company's tax...

    Given the following information for Watson Power Co., find the WACC . Assume the company's tax rate is 21 percent Debt : 15000 bonds with a 5.8 percent coupon outstanding , $1000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments Common stock : 575,000 shares outstanding, selling for $64 per share, the beta is 1.09 Preferred stock : 35,000 shares of 2.8 percent preferred stock outstanding, currently selling for $65 per...

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

    You are given the following information for Magrath Power Co. Assume the company’s tax rate is 35%. Debt: 10,000 6.4% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108% of par; the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15. Preferred stock: 35,000 shares of 3.5% preferred stock outstanding, currently selling for $72 per share. Market: 7% market risk premium and 3.2% risk-free rate. What is...

  • Consider the following information for Evenflow Power Co.,      Debt: 3,000 6.5 percent coupon bonds outstanding,...

    Consider the following information for Evenflow Power Co.,      Debt: 3,000 6.5 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.   Common stock: 75,000 shares outstanding, selling for $62 per share; the beta is 1.05.   Preferred stock: 9,000 shares of 5.5 percent preferred stock outstanding, currently selling for $105 per share.   Market: 8 percent market risk premium and 4.5 percent risk-free rate.    Assume the company's tax...

  • 3. Given the following information for Huntington Power Co., find the WACC. Assume the tax rate...

    3. Given the following information for Huntington Power Co., find the WACC. Assume the tax rate is 21%. a) Firm has 4,000 bonds with par value of $1,000, which are currently trading at $1,030 and has a maturity of 20 years. This bond makes semi-annual coupon payments of 7 percent.. b) Firm has 90,000 common shares outstanding, which are currently trading at $57 per share. Beta of the stock is 1.10. Market risk premium is 8 percent and risk-free rate...

  • 3. Given the following information for Huntington Power Co., find the WACC. Assume the tax rate...

    3. Given the following information for Huntington Power Co., find the WACC. Assume the tax rate is 21%. a) Firm has 4,000 bonds with par value of $1,000, which are currently trading at $1,030 and has a maturity of 20 years. This bond makes semi-annual coupon payments of 7 percent.. b) Firm has 90,000 common shares outstanding, which are currently trading at $57 per share. Beta of the stock is 1.10. Market risk premium is 8 percent and risk-free rate...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT