Corporate Finance, Fall 2013 WACC
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Calculate the Components of WACC and the WACC
Cost of Debt:
30 year Bonds
Current Price 97.5% of par value
9.5 % Coupon Rate
Semi Annual Bond
10 years to maturity
Tax Rate: 40%
What is the Cost of Debt?
10 pts
Preferred Stock
Dividend		$13.50
Current Price		$57.25
What is the Cost of Preferred?
10 pts
Equity
Risk Free Rate		6.50%
Market Risk Premium		7.25%
Stock Beta		1.2
What is the Cost of Equity?
10 pts
Debt/Equity
5,000 Bonds Outstanding Selling @ 97.5% of Par Value
43,000 Preferred Stock @ $57.25
300,000 Shares of Common Stock @ $28.00 per share
What is the WACC?
20 pts
Given the WACC Calculate the NPV for the following capital budgeting decision
Investment is:		$275,000
Cash Flows
1st Year		-50,000
2nd Year		65,000
3rd Year		75,000
4th Year		85,000
5th Year		150,000
NPV is
Decision (Circle One)			Accept	Reject
40 pts
Calculate Payback
10 pts