Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Given the following information for Lightning Power Co., find the WACC. Assume the companys tax rate is 35 percent. Debt: 8,000 6.5 percent coupon bonds

Given the following information for Lightning Power Co., find the WACC. Assume the companys tax rate is 35 percent.

Debt: 8,000 6.5 percent coupon bonds outstanding. $1,000 par value, 25 years to maturity,

selling for 106 percent of par; the bonds make semiannual payments.

Common stock: 310,000 shares outstanding, selling for $57 per share: the beta is 1.05.

Preferred Stock: 15,000 shares of 4 percent preferred stock outstanding, currently selling for 72 per share.

Market: 7 percent market risk premium and 4.5 percent risk-free rate.

WACC = Kd x Pd + Kpfd x Kpfd + Ke x Pe

The proportions, costs and weighted costs are in decimals to 4 places

Market value Market Proportions costs Weighted Costs
Debt ? ? ? .0122
Prefered 1,080,000 ? ? ?
Equity ? .6489 ? ?
Total ? WACC = ?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Accumulation And Monetary Power

Authors: Daniel Woodley

1st Edition

0367338556, 978-0367338558

More Books

Students also viewed these Finance questions