Regent Fireplaces Ltd.is establishing an appropriate discount rate to apply to this year's investment projects.The controller has suggested the weighted average cost of capital (WACC)would be an appropriate rate and has gathered the following information as a start to finding the WACC:
Selected information from the December 31, 2022 Balance Sheet

The bonds, which have 15 years to maturity, have a coupon rate of 6.0% with interest paid semi-annually.Current market yields on this risk security are currently about 4.5%.Flotation costs would be 1.0% of the issue price.
The preferred shares with a fixed dividend $4.10 per share currently trade at $82.00 per share.Flotation expenses of a new issue of preferred would be $3.20 per share.
The common shares are currently trading at $8.00 per share.The most recent dividend was $0.12 per share.Flotation expenses would be $0.25 per share.The risk-free rate is currently 1.75%, and the market rate of return is 7.25%.Regent Fireplaces Ltd.has a beta of 1.25.
Regent's tax rate is 30%.All flotation costs are stated as after-tax.
Calculate the weighted average cost of capital of Regent.

Question

Regent Fireplaces Ltd.is establishing an appropriate discount rate to apply to this year's investment projects.The controller has suggested the weighted average cost of capital (WACC)would be an appropriate rate and has gathered the following information as a start to finding the WACC:
Selected information from the December 31, 2022 Balance Sheet
  
The bonds, which have 15 years to maturity, have a coupon rate of 6.0% with interest paid semi-annually.Current market yields on this risk security are currently about 4.5%.Flotation costs would be 1.0% of the issue price.
The preferred shares with a fixed dividend $4.10 per share currently trade at $82.00 per share.Flotation expenses of a new issue of preferred would be $3.20 per share.
The common shares are currently trading at $8.00 per share.The most recent dividend was $0.12 per share.Flotation expenses would be $0.25 per share.The risk-free rate is currently 1.75%, and the market rate of return is 7.25%.Regent Fireplaces Ltd.has a beta of 1.25.
Regent's tax rate is 30%.All flotation costs are stated as after-tax.
Calculate the weighted average cost of capital of Regent.

Quizplus · Accepted Answer

The Answer of Regent Fireplaces Ltd.is establishing an appropriate discount rate to apply to this year's investment projects.The controller has suggested the weighted average cost of capital (WACC)would be an appropriate rate and has gathered the following information as a start to finding the WACC:
Selected information from the December 31, 2022 Balance Sheet
  
The bonds, which have 15 years to maturity, have a coupon rate of 6.0% with interest paid semi-annually.Current market yields on this risk security are currently about 4.5%.Flotation costs would be 1.0% of the issue price.
The preferred shares with a fixed dividend $4.10 per share currently trade at $82.00 per share.Flotation expenses of a new issue of preferred would be $3.20 per share.
The common shares are currently trading at $8.00 per share.The most recent dividend was $0.12 per share.Flotation expenses would be $0.25 per share.The risk-free rate is currently 1.75%, and the market rate of return is 7.25%.Regent Fireplaces Ltd.has a beta of 1.25.
Regent's tax rate is 30%.All flotation costs are stated as after-tax.
Calculate the weighted average cost of capital of Regent.