Given the following information for Lightning Power Co., find the WACC. Assume the companyâs tax rate is 35 percent.
Debt: 8,000 6.5 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 106 percent of par;the bonds make semiannual payments.
Common stock: 310,000 shares outstanding, selling for $57 per share; the beta is 1.05.
Preferred stock: 15,000 shares of 4 percent preferred stock outstanding, currently selling for $72 per share.
Market: 7 percent market risk premium and 4.5 percent risk-free rate.
1. If a firm plans to issue debt to finance their next project then, they should discount the project's cash flows by:
The weighted cost of debt
The after tax cost of debt
The YTM
The historical cost of debt
None of the above
2. The WACC is:
The historical cost of raising funds in the market.
The arithmetic average cost of raising capital.
The marginal cost of raising funds in the market today.
The discount rate only if we raise funds from all sources of capital.
None of the above.
3. What is the weighted cost of capital?
4. Equity is what portion of the capital structure of the firm?
5. The weighted cost of debt is?
Given the following information for Lightning Power Co., find the WACC. Assume the companyâs tax rate is 35 percent.
Debt: 8,000 6.5 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 106 percent of par;the bonds make semiannual payments.
Common stock: 310,000 shares outstanding, selling for $57 per share; the beta is 1.05.
Preferred stock: 15,000 shares of 4 percent preferred stock outstanding, currently selling for $72 per share.
Market: 7 percent market risk premium and 4.5 percent risk-free rate.
1. If a firm plans to issue debt to finance their next project then, they should discount the project's cash flows by:
| The weighted cost of debt |
| The after tax cost of debt |
| The YTM |
| The historical cost of debt |
| None of the above |
2. The WACC is:
| The historical cost of raising funds in the market. |
| The arithmetic average cost of raising capital. |
| The marginal cost of raising funds in the market today. |
| The discount rate only if we raise funds from all sources of capital. |
| None of the above. |
3. What is the weighted cost of capital?
4. Equity is what portion of the capital structure of the firm?
5. The weighted cost of debt is?
Related questions
You are given the following information for Lightning Power Co. Assume the companyâs tax rate is 40 percent.
| Debt: | 7,000 6.2 percent coupon bonds outstanding, $1,000 par value, 15 years to maturity, selling for 105 percent of par; the bonds make semiannual payments. |
| Common stock: | 340,000 shares outstanding, selling for $52 per share; the beta is 1.08. |
| Preferred stock: | 12,000 shares of 5 percent preferred stock outstanding, currently selling for $72 per share. |
| Market: | 8 percent market risk premium and 4.20 percent risk-free rate. |
| What is the company's WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| WACC | % |
Given the following information for Evenflow Power Co., the WACC is percent. Assume the company's tax rate is 35 percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))
| Debt: | 8,000 bonds outstanding, 6.5 percent coupon rate (APR), $1,000 par value, 20 years to maturity, selling for 92 percent of par; the bonds make semiannual payments. |
| Common stock: | 250,000 shares outstanding, selling for $57 per share; the beta is 1.05. |
| Preferred stock: | 15,000 shares of 5 percent preferred stock outstanding, currently selling for $93 per share. (Note: a 5% preferred stock means that the dividend is $5) |
| Market: | 8 percent market risk premium and 4.5 percent risk-free rate. |
