Question
1.Quarri Industries has 8 percent coupon bonds outstanding. These bonds have a market price of $954.41, pay interest semiannually, and will mature in six years.
1.Quarri Industries has 8 percent coupon bonds outstanding. These bonds have a market price of $954.41, pay interest semiannually, and will mature in six years. If the tax rate is 35 percent, what are the pretax cost and after-tax cost of this debt?
2.Quarri Industries common stock has a beta of 1.6. If the market risk-free rate is 4 percent and the expected return on the market is 9 percent, what is Quarri's cost of common stock?
3.Use the information in Questions 1 and 2 as well as the following information to compute the WACC for Quarri Industries. In addition to common stock, Quarri has 500,000 preferred shares outstanding that pay a quarterly dividend of $0.50 per share and are currently trading for $20.00 a share. The company's outstanding bonds have a face value of $209,553,546. There are 2 million shares of common stock outstanding with a current market price of $98.00 per share
Is answer 1) pretax- 8.99% aftertax- 5.84% 2)18.4% 3) 11.86%?
1) 954.41=40/(1+i)+...+ 40/(1+i)^12
i=0.0899 x (1-0.35) = 0.0584
2) 0.04+(1.6x0.09) = 0.184
3) WACC= (0.504)(0.0899)(1-0.35)+(0.0241)(0.1)+(0.47166)(0.184) = 0.1186
If not correct, can you please provide detailed steps of how to solve for the questions?
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