Question
Hillary Inc. has several bond issues outstanding, each making semi-annual interest payments. The bonds are listed in the following table. Bond Coupon Rate Price Quote
Hillary Inc. has several bond issues outstanding, each making semi-annual interest payments. The bonds are listed in the following table.
| Bond |
| Coupon Rate |
| Price Quote | Maturity |
| Face Value |
| |||||||
| 1 |
|
| 4.00 | % |
|
| 98.58% |
|
| 4 | years |
| $ | 65,000,000 |
|
| 2 |
|
| 8.00 | % |
|
| 105.50% |
|
| 8 | years |
|
| 55,000,000 |
|
The company has a beta of 1.25. The company has 200,000 outstanding shares, each traded at $500 in the market. It also has 100,000 preferred shares paying constant annual dividends, currently priced at $30 per share. The most recent dividend on preferred stocks was $2. The risk-free rate is 4% and the expected return on the market portfolio is 10%.
a) If the corporate tax rate is 36%, what is WACC
Hint: Calculate the market values of the bond issues and use them to calculate the weighted average cost of debt.
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