Weighted Average Cost of Capital [WACC}

Questions 20 through 26 refer to the following date for Roadrunner Enterprises.

This same information will apply for Questions 20-27:

Use the information below to calculate the Weighted Average Cost of Capital [WACC] for Roadrunner Enterprises.

The company has the following components of its capital structure:

DEBT: 22,750 bonds outstanding with a 6.5% coupon rate, paid annually.

Each bond has $1,000 par value with a 30-year stated maturity,

and were issued five years ago.

The bonds currently sell for 85% of par in the market.

PREFERRED STOCK:

There are 29,400 shares of preferred stock outstanding.

The shares sell for $82.31 in the market.

They pay an annual cash dividend of $8.85 per share.

COMMON STOCK:

There are 355,000 shares of common stock outstanding.

The shares sell for $83.25 in the market and pay an annual cash dividend of $2.35 per share.

The stock has a beta of 1.53.

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The company has a corporate tax rate of 30%.

The expected return of the Market; that is, the S&P500 is 10.12% per year.

T-bills are expected to return 3.58% per year.

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Q20: What's the weight of debt in the capital structure?

Select one:

a. 80% to 90%

b. 60% to 70%

c. 90% to 100%

d. 10% to 20%

e. 0% to 10%

f. 50% to 60%

g. 40% to 50%

h. 70 to 80%

i. 20% to 30%

j. 30% to 40%