WACC/ Capital Structure and Market Returns


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The following information is available concerning a firm's capital: Debt: Five thousand bonds with a face value of $1000 and an initial 20 year term were issued five years ago with a coupon rate of 8%. Today these bonds are selling for $846.30. Preferred stock: Twenty thousand shares of common stock paying an annual dividend of $9.50 are outstanding. The shares currently trade at $79.16 Common equity: Two hundred thousand shares of common stock are outstanding which are now selling for $22.50 per share. An annual dividend of $1.70 was just paid and is expected to grow indefinitely at 6%. Target Capital Structure: The firm's target capital structure is of 30% debt, 20% preferred stock, and 50% equity. The firm can issue any type of security without paying flotation costs. The combined federal and state tax rate is 40%. Calculate the firm's WACC based on its a. Target capital structure and market returns b. Market value based capital structure and market returns Jan 21 2014 01:09 AM


Solution ID:609088 | This paper was updated on 26-Nov-2015

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