• Question 29 of 52
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Question 29

A firm has provided the following information about its current capital structure:

Debt: The firm just issued an 8-year, $1,000 par value, 6 percent (paid semi-annual) coupon bond. The current mark price of the bond is $985, and there are 1,000 bonds outstanding. The firm has a marginal tax rate of 36%.

Preferred Stock: The company has not issued and does not plan to issue any preferred stock.

Common Stock: A firm's common stock is currently selling for $92 per share, and there are 7,138 shares oustanding. The most recent dividend paid was $9. Dividends are expected to grow at a constant 5% rate indefinitely.

Given the information above, calculate the following (show your work and inputs for partial credit):

a. [9 points] Calculate the firm's after-tax cost of debt, r_d(1-T)

b. [5 points] Calculate the cost of existing common stock (using the constant growth dividend discount model) , r_s

c. [6 points] Calculate the weights of debt and equity, w_d and w_c

d. [5 points] Calculate the firm's WACC (weighted average cost of capital)