Question
The following information is available concerning a firm's capital: DEBT: 5000 bonds with a face value of $1000 and an initial 20 year term were
The following information is available concerning a firm's capital:
DEBT: 5000 bonds with a face value of $1000 and an initial 20 year term were issued five years ago with a present coupon rate of 8%. Today these bonds are selling for $846.30
PREFERRED STOCK: 20,000 shares of preferred stock paying an annual dividend of $9.50 are outstanding. The shares currently trade at $79.16
COMMON EQUITY: 200,000 shares of common stock are outstanding which are now selling for $22.50 per share. An annual dividend of $1.70 was just paid and is expected to grow indefinitely at 6%.
TARGET CAPITAL STRUCTURE: The firm's target capital structure is of 30% debt, 20% preferred stock, and 50% equity.
THE FIRM CAN ISSUE ANY TYPE OF SECURITY WITHOUT PAYING FLOTATION COSTS. THE COMBINED FEDERAL AND STATE TAX RATE IS 40%.
CALCULATE THE FIRM'S WACC BASED ON IT TARGET CAPITAL STRUCTURE AND MARKET RETURNS
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