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Problem 12-18 Calculating the WACC [LO 3] You are given the following information concerning Parrothead Enterprises: Debt: 10,000 7.0 percent coupon bonds outstanding, with 25
Problem 12-18 Calculating the WACC [LO 3] You are given the following information concerning Parrothead Enterprises: Debt: 10,000 7.0 percent coupon bonds outstanding, with 25 years to maturity and a quoted price of 106.50. These bonds pay interest semiannually. Common stock: 275,000 shares of common stock selling for $65.50 per share. The stock has a beta of.95 and will pay a dividend of $3.70 next year. The dividend is expected to grow by 5.0 percent per year indefinitely. Preferred stock: 9,000 shares of 4.50 percent preferred stock selling at $95.00 per share. Market: An expected return of 11.0 percent, a risk-free rate of 5.00 percent, and a 35 percent tax rate. What is the firm's cost of each form of financing? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Aftertax cost of debt Cost of preferred stock Cost of equity Calculate the WACC for the company. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
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