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Consider the following information for Evenflow Power Co., Debt: 2,500 bonds that each year pay 6 percent of par value as an annual coupon, have
Consider the following information for Evenflow Power Co.,
Debt: 2,500 bonds that each year pay 6 percent of par value as an annual coupon, have a $1,000 par value, and a yield to maturity of 5.58 percent compounded annually. The bonds have 20 years to maturity and currently sell for 105 percent of par (face) value.
Common Stock: 62,500 shares outstanding, selling for $56 per share; the beta is 1.19.
Preferred Stock: 7,500 preferred shares that pay a dividend of 5.5 percent annually on $100 par value, and currently sell for $106 per share.
Market: 7 percent market risk premium and 5.5 percent risk-free rate.
Assume the company's tax rate is 34 percent. Note: Face value is sometimes used interchangeably with par value. Preferred shares almost always pay a constant dividend, but the dividend is usually quoted as a percent of par value (just like coupons and bonds). So as an example, a 7% preferred dividend on a $100 par value means the annual dividend payment is $7.
Find the WACC.
9.71%
8.99%
9.15%
8.89%
9.39%
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