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Cost of Debt:

30 year Bonds

Current Price 98.6% of par value

7 % Coupon Rate

Semi Annual Bond

10 years to maturity

Tax Rate: 40%
What is the Cost of Debt? After Tax

Preferred Stock-

Dividend $6.00

Current Price $71.00

What is the Cost of Preferred?

Equity

Risk Free Rate 4.20%

Market Risk Premium 8.00%

Stock Beta 0.55

What is the Cost of Equity?

Debt/Equity

10,000 Bonds Outstanding Selling @ 98.6% of Par Value

10,000 Preferred Stock @ $71.00

150,000 Shares of Common Stock @ $65.00 per share

What is the WACC?

Given the WACC Calculate the NPV for the following capital budgeting decision

Investment is: $450,000

Cash Flows

1st Year -100,000

2nd Year 75,000

3rd Year 200,000

4th Year 300,000

5th Year 150,000

NPV is Decision (Select One) Accept or Reject

Calculate Payback

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Keith Leannon
Keith LeannonLv2
28 Sep 2019

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Related questions

Calculate the Components of WACC and the WACC

Use 4 decimals

Cost of Debt: 30 year Bonds

Current Price 98.6% of par value

7 % Coupon Rate

Semi Annual Bond

10 years to maturity

Tax Rate: 40%

What is the Cost of Debt? After Tax

Match the Weighted Average Cost of Capital to each of the scenarios given for ABC Corporation.

- A. B. C. D. E.

Target capital structure: 64% debt, 8% preferred stock and 28% common equity. Yield to maturity on bonds: 4.0%; Preferred stock dividend: $7.44 per year; current market price of preferred stock is $69.94. CAPM data for common equity: risk-free rate is 3.3%; market risk premium for the average stock is 5.6%; ABC has a beta of 1.88. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 71% debt, 6% preferred stock and 23% common equity. Yield to maturity on bonds: 8.8%; Preferred stock dividend: $6.25 per year; current market price of preferred stock is $68.75. CAPM data for common equity: risk-free rate is 4.9%; market risk premium for the average stock is 7.5%; ABC has a beta of 0.92. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 59% debt, 9% preferred stock and 32% common equity. Yield to maturity on bonds: 6.2%; Preferred stock dividend: $6.07 per year; current market price of preferred stock is $68.57. CAPM data for common equity: risk-free rate is 3.4%; market risk premium for the average stock is 9.9%; ABC has a beta of 0.82. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 69% debt, 7% preferred stock and 24% common equity. Yield to maturity on bonds: 8.6%; Preferred stock dividend: $6.14 per year; current market price of preferred stock is $68.64. CAPM data for common equity: risk-free rate is 3.3%; market risk premium for the average stock is 10.5%; ABC has a beta of 0.79. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 51% debt, 12% preferred stock and 37% common equity. Yield to maturity on bonds: 5.3%; Preferred stock dividend: $6.71 per year; current market price of preferred stock is $69.21. CAPM data for common equity: risk-free rate is 4.3%; market risk premium for the average stock is 4.5%; ABC has a beta of 1.84. ABC's marginal tax rate is 40%.
A.

7.44%
B.

7.01%
C.

6.97%
D.

6.26%
E.

6.68%

Match the Weighted Average Cost of Capital to each of the scenarios given for ABC Corporation.

- A. B. C. D. E.

Target capital structure: 32% debt, 14% preferred stock and 54% common equity. Yield to maturity on bonds: 4.7%; Preferred stock dividend: $7.79 per year; current market price of preferred stock is $70.29. CAPM data for common equity: risk-free rate is 3.6%; market risk premium for the average stock is 4.7%; ABC has a beta of 2.31. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 31% debt, 9% preferred stock and 60% common equity. Yield to maturity on bonds: 4.4%; Preferred stock dividend: $7.89 per year; current market price of preferred stock is $70.39. CAPM data for common equity: risk-free rate is 3.2%; market risk premium for the average stock is 15.0%; ABC has a beta of 0.76. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 42% debt, 14% preferred stock and 44% common equity. Yield to maturity on bonds: 8.5%; Preferred stock dividend: $7.90 per year; current market price of preferred stock is $70.40. CAPM data for common equity: risk-free rate is 3.7%; market risk premium for the average stock is 8.1%; ABC has a beta of 1.35. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 37% debt, 10% preferred stock and 53% common equity. Yield to maturity on bonds: 7.0%; Preferred stock dividend: $7.30 per year; current market price of preferred stock is $69.80. CAPM data for common equity: risk-free rate is 3.8%; market risk premium for the average stock is 5.1%; ABC has a beta of 1.93. ABC's marginal tax rate is 40%.
- A. B. C. D. E.

Target capital structure: 33% debt, 10% preferred stock and 57% common equity. Yield to maturity on bonds: 5.5%; Preferred stock dividend: $7.41 per year; current market price of preferred stock is $69.91. CAPM data for common equity: risk-free rate is 3.3%; market risk premium for the average stock is 12.9%; ABC has a beta of 0.81. ABC's marginal tax rate is 40%.
A.

9.99%
B.

9.83%
C.

10.59%
D.

10.26%
E.

10.15%

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