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Prashant Ceramics Limited, is interested in estimating its weighted average cost of capital (WACC) now that it is in its rapid growth stage. Prashant Ceramics
- Prashant Ceramics Limited, is interested in estimating its weighted average cost of capital (WACC) now that it is in its rapid growth stage. Prashant Ceramics has 100,000 $1,000 par, 13 percent semi-annual coupon bonds outstanding. It also has 1 Million shares of 6% preferred stock outstanding with $100 face value. The preferred stock sells for $80 per share. The common stock sells for $70 per share and has a beta of 1.8. It has 1.5 million shares of common stock outstanding. The bonds have 15 years to maturity and sell for 90 percent of par. The market risk premium is 9.0 percent, T-bills are yielding 5.0 percent, and the firms tax rate is 40 percent.
- Determine the after-tax cost of the long-term bond issue.
- Determine the after-tax cost of preferred stock.
- Determine the after-tax cost of common stock.
- Compute the WACC for Prashant Ceramics Limited.
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