Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hero Manufacturing has 7.9 million shares of common stock outstanding. The current share price is $83and the book value per share is $4. The company

Hero Manufacturing has 7.9 million shares of common stock outstanding. The current share price is $83and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $65 million,a coupon rate of 6.7 percent and sells for 107.3 percent of par. The second issue has a face value of $45.8 million, a coupon rate of 7.2 percent and sells for 111.1 percent of par. The first issue matures in 8 years, the second in 28 years.

Suppose the company's stock has a beta of 1.2. The risk-free rate is 3.2 percent and the market risk premium is 7.1 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company's WACC?(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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

Basic Finance An Introduction to Financial Institutions, Investments and Management

Authors: Herbert B. Mayo

11th Edition

1285425790, 1285425795, 9781305464988 , 978-1285425795

More Books

Students also viewed these Finance questions

Question

Am I expecting too much from other people?

Answered: 1 week ago