12:324 Answer to Question 1. Common Stock: Number of shares outstanding = 220,000 Current Price = $27 Value of Common Stock = 220,000 . 527 Value of Common Stock = $5,940,000 Cost of Common Equity = Risk-free Rate Beta (Market Return-Risk Free Rate) Cost of Common Equity = 5%.135 (10%- 5%) Cost of Common Equity = 11.75% Preferred Stock: Number of shares outstanding = 25,000 Current Price = $41 Annual Dividend = $4.10 Value of Preferred Stock = 25,000 $41 Value of Preferred Stock = $1,025,000 Cost of Preferred Stock = Annual Dividend Current Price Cost of Preferred Stock = $4.10/341 Cost of Preferred Stock = 10.00% Bond: Face Value $550,000 Current Price = 101.20% $550,000 = $556,600 Annual Coupon Rate = 6% Semiannual Coupon Rate = 396 Semiannual Coupon = 3% * $550,000 = $ 16,500 Time to Maturity = 8 years Semiannual Period to Maturity = 16 Let semiannual YTM be% $556,600 = $16,500PVIFA(P%, 15) $550,000 PVIF(%, 16) Using financial calculator: N = 16 PV = -556600 PMT = 16500 FV 550000 1 = 2.9156 Semiannual YTM = 2.91% Annual YTM = 2.2.91% Annual YTM=5.82% Before-tax Cost of Debt-5.825 After-tax Cost of Debt5.82% (1 -0.37) After-tax Cost of Debt = 3.67% Value of Firm = Value of Common Stock Value of Preferred Stock + Value of Bond Value of Firm = $5,940,000+ $1025,000+ $556,600 Value of Firm= 57,521,600 Weight of Common Stock = $5,940,000 $7,521,600 Weight of Common Stock = 0.7897 Weight of Preferred Stock = $1,025,000 $7,521,600 Weight of Preferred Stock = 0.1363 Weight of Bond = $556,600 / $2,521600 Weight of Bond = 0.0740 WACC = (Weight of Common Stock Cost of Common Stock) + (Weight of Preferred Stock ght of 12:324 Answer to Question 1. Common Stock: Number of shares outstanding = 220,000 Current Price = $27 Value of Common Stock = 220,000 . 527 Value of Common Stock = $5,940,000 Cost of Common Equity = Risk-free Rate Beta (Market Return-Risk Free Rate) Cost of Common Equity = 5%.135 (10%- 5%) Cost of Common Equity = 11.75% Preferred Stock: Number of shares outstanding = 25,000 Current Price = $41 Annual Dividend = $4.10 Value of Preferred Stock = 25,000 $41 Value of Preferred Stock = $1,025,000 Cost of Preferred Stock = Annual Dividend Current Price Cost of Preferred Stock = $4.10/341 Cost of Preferred Stock = 10.00% Bond: Face Value $550,000 Current Price = 101.20% $550,000 = $556,600 Annual Coupon Rate = 6% Semiannual Coupon Rate = 396 Semiannual Coupon = 3% * $550,000 = $ 16,500 Time to Maturity = 8 years Semiannual Period to Maturity = 16 Let semiannual YTM be% $556,600 = $16,500PVIFA(P%, 15) $550,000 PVIF(%, 16) Using financial calculator: N = 16 PV = -556600 PMT = 16500 FV 550000 1 = 2.9156 Semiannual YTM = 2.91% Annual YTM = 2.2.91% Annual YTM=5.82% Before-tax Cost of Debt-5.825 After-tax Cost of Debt5.82% (1 -0.37) After-tax Cost of Debt = 3.67% Value of Firm = Value of Common Stock Value of Preferred Stock + Value of Bond Value of Firm = $5,940,000+ $1025,000+ $556,600 Value of Firm= 57,521,600 Weight of Common Stock = $5,940,000 $7,521,600 Weight of Common Stock = 0.7897 Weight of Preferred Stock = $1,025,000 $7,521,600 Weight of Preferred Stock = 0.1363 Weight of Bond = $556,600 / $2,521600 Weight of Bond = 0.0740 WACC = (Weight of Common Stock Cost of Common Stock) + (Weight of Preferred Stock ght of
