15. Finding the WACC. Given the following information for Janicek Power Co., find the WACC. Assume the company's tax rate is 35 percent.

Debt:8,500 7.2 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 118 percent of par; the bonds make semiannual payments.

Common stock:225,000 shares outstanding, selling for $87 per share; beta is 1.15.

Preferred stock:15,000 shares of 4.8 percent preferred stock outstanding, currently selling for $98 per share.

"Market:"7 percent market risk premium and 3.1 percent risk-free rate.

Cost of Debt

Face Value of each bond1000

Market value of each bondMV(d)1180

Interest half yearlyI36.00

Cost of Debt Annual - PretaxKd (pretax)5.82%

Cost of Debt Annual - After taxKd (1-t) 3.79%

Market value of 8,500 bonds$MV ( d ) 10,030,000

Selling price per share$MV ( e ) 87

Beta1.15

Market risk premimumrm-rf7.00%

Risk free raterf3.10%

Cost of equityKe11.15%

Selling price of 225,000 share$MV ( e ) 19,575,000

Preferred Share Market value$MV ( p ) 98

Annual dividend$I4.8

Cost of preferred sharesKp4.90%

Market value of preferred shares$MV ( p ) 1,470,000

To calculate WACC:

"Market Value

($)"Cost of Debt/stockMarket value*cost %

ABC=A*B

Debt 10,030,000 3.79% 379,703

Common Stock 19,575,000 11.15% 2,182,613

Preferred Stock 1,470,000 4.90% 72,000

31,075,000 2,634,316

WACC of Janicek Power Co.8.48%

Market value of each bond-1180

1Installment36

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IRR semi annually2.912%

IRR annually5.82%