Question
Ema Corp. has 7 million shares of common stock outstanding. The current share price is $73, and the book value per share is $8. Erna
Ema Corp. has 7 million shares of common stock outstanding. The current share price is $73, and the book value per share is $8. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $75 million, has a coupon rate of 8 percent, and sells for 98 percent of par. The second Issue has a face value of $55 million, has a coupon rate of 9 percent, and sells for 107 percent of par. The first issue matures in 23 years, the second in 7 years.
Suppose the most recent dividend was $4.50 and the dividend growth rate is 8 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 30 percent. What is the company's WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) WACC %
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started