A B D E F G 1 2 3 Given the following information for Watson Power Co., find the WACC. Assume the company's tax rate is 21 percent. Debt: 10,000 6.4 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments. Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15. Preferred stock: 35,000 shares of 3.5 percent preferred stock outstanding, currently selling for $72 per share. Market: 7 percent market risk premium and 3.2 percent risk-free rate. 4 5 6 21% 7 8 9 Tax rate Debt Bonds outstanding Settlement date Maturity date Annual coupon rate Coupons per year 10 10,000 01/01/00 01/01/25 6.40% 2 11 12 12 13 Coupons per year Bond price (% of par) Redemption value (% of par) Par value 2 108 100 1,000 14 15 $ 16 17 18 Common stock Shares outstanding Beta Share price 19 495,000 1.15 63 20 $ 21 22 23 24 Preferred stock outstanding Shares outstanding Dividend percentage Share price 35,000 3.50% 72 $ 25 26 27 28 Market Market risk premium Risk-free rate 7.00% 3.20% 29 30 32 Complete the following analysis. Do not hard code values in your calculations. Leave the "Basis" input blank in the YIELD function. You must use the built-in Excel function to answer this question. 33 34 Market value of debt 35 36 Market value of equity 37 38 Market value of preferred 39 40 Market value of firm 41 42 Market value weight of debt 43 44 Market value of weight equity 45 46 Market value of weight preferred 47 48 Pretax cost of debt 49 44 Market value of weight equity 45 46 Market value of weight preferred 47 48 Pretax cost of debt 49 50 Aftertax cost of debt 51 52 Cost of equity 53 54 Cost of preferred 55 56 WACC