Weighted Average Cost of Capital (WACC):

Now think that you work for ABC Corp. You have a great project youd like to pitch to senior management. You are asked to determine the WACC of the corporation as a first step.

You know the following information from the Balance Sheet

Long-term Debt (in Bonds) = $200,000 Preferred Stock = 50,000 Common Stock (in Retained Earnings) = 250,000

You also know the following general information

Par value of a bond is $1,000 Coupon rate is 4.5%, paid semi-annually Bonds mature in 15 years Price today is $853.00

Dividend on preferred is $3.00 Current market price of preferred is $37.50

Most recent dividend on common is $0.75 Growth rate is expected to be 5% Current market price of common is $11.25

Return on a risk-free asset (Rf) such as the 10-year US Treasuries is 4% Return on the market (Rm) is 11% Beta of ABC Corp. is 1.3

Calculate the WACC