5a

Item5

Item 5

Item 5

Consider the following information for Watson Power Co.:

Debt:		5,500 9 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 104 percent of par; the bonds make semiannual payments.
Common stock:		121,000 shares outstanding, selling for $63 per share; the beta is 1.06.
Preferred stock:		17,500 shares of 8.5 percent preferred stock outstanding, currently selling for $106 per share.
Market:		9.5 percent market risk premium and 8 percent risk-free rate.

Assume the company's tax rate is 33 percent.

Find the WACC.

Multiple Choice

• 13.26%

• 12.6%

• 12.2%

• 12.38%

• 12.1%

5b

The Rhaegel Corporation's common stock has a beta of 1.1. If the risk-free rate is 4.5 percent and the expected return on the market is 10 percent, what is the company's cost of equity capital?

Multiple Choice

• 10.97%

• 10.02%

• 10.55%

• 11.08%

• 15.5%