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Answer Key Problem #1 (10 points) You are told the WACC for the following firm is 7.95 percent. The company pays no dividends. What is the beta for the company's stock? 6.1 percent and 25 years to Debt: 100,000 bonds with a par value of $1,000 and a quoted price of maturity. 250,000 zero coupon bonds with a quoted price of 18.70, 30 years to maturity, and a par value of $1,000 112.30. The bonds have coupon rate of Preferred Stock: 95,000 shares of 5.2 percent preferred selling at a price of S105 Common Stock: 2,600,000 shares of stock selling at a market price of $81 Market: The market risk WACC premium is 7 percent and the risk-free rate is 2.8 percent. The company is in the 4 0 percent tax bracket. 7.95% Bond 1 Debt Number of bonds Par value (% of par) Coupon rate Quoted price Settlement date Maturity date Coupons per year Bond 2 100,000 100 6.10% 112.30 1/1/2000 1/1/2025 250,000 100 0.00% 18.70 1/1/2000 1/1/2030 Preferred stock Number of shares Dividend Price 95,000 5.20% 105 Common stock Number of shares Price 2,600,000 Market Market risk premium Risk-free rate Tax rate 7.0% 2.8% 40% Answer Key Problem #1 (10 points) You are told the WACC for the following firm is 7.95 percent. The company pays no dividends. What is the beta for the company's stock? 6.1 percent and 25 years to Debt: 100,000 bonds with a par value of $1,000 and a quoted price of maturity. 250,000 zero coupon bonds with a quoted price of 18.70, 30 years to maturity, and a par value of $1,000 112.30. The bonds have coupon rate of Preferred Stock: 95,000 shares of 5.2 percent preferred selling at a price of S105 Common Stock: 2,600,000 shares of stock selling at a market price of $81 Market: The market risk WACC premium is 7 percent and the risk-free rate is 2.8 percent. The company is in the 4 0 percent tax bracket. 7.95% Bond 1 Debt Number of bonds Par value (% of par) Coupon rate Quoted price Settlement date Maturity date Coupons per year Bond 2 100,000 100 6.10% 112.30 1/1/2000 1/1/2025 250,000 100 0.00% 18.70 1/1/2000 1/1/2030 Preferred stock Number of shares Dividend Price 95,000 5.20% 105 Common stock Number of shares Price 2,600,000 Market Market risk premium Risk-free rate Tax rate 7.0% 2.8% 40%