Question
Harvey LLCs capital structure consists of a 25-year bond issued 5 years ago with a coupon of 6% and a par value of $14,000,000. The
Harvey LLCs capital structure consists of a 25-year bond issued 5 years ago with a coupon of 6% and a par value of $14,000,000. The companys main competitor just issued a similar bond paying 5%. The company has 1,000,000 common shares outstanding at a market price of $14.35 per share and a Beta from Yahoo Finance of 1.53. It has also issued 25,000 shares of preferred stock which is selling today at $235 per share and a annual dividend per share of 13.50. The firm has a 10 year $12,500,000 loan with annual payments at 6.25% interest that it received 2 years ago. The T-note rate is 1.9% and Money Magazine forecasts the return of the S&P 500 for this year at 8.5%. The tax rate for the company is 33%.Calculate the companys w.a.c.c.
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