Worksheet 1: Finding the WACC

You are given the following information concerning Happy Value Enterprise:

Common Stock: 225,000 shares of common stock selling for $64.50 per share. The stock has a beta of 0.85 and will pay a dividend of $2.70 next year. The dividend is expected to grow by 5 percent per year indefinitely.

Preferred stock: 8,000 shares of 4.5 percent stock selling at $94 per share.

Debt: 9,000 6.2 percent coupon bonds outstanding, with 20 years to maturity and a quoted price of 104

Market: A 12 percent expected return, a 5 percent risk-free rate, and a 35 percent tax rate. Calculate the WACC for Happy Value Enterprise