Finally There! has 1,500 bonds outstanding with a $1,000 par value,a yield to maturity of 6.4 percent,and a market price of $989 each.The firm also has 74,000 shares of common stock outstanding at a price per share of $35 and a beta of 1.08.The risk-free rate is 2 percent,the market risk premium is 7 percent,and the tax rate is 34 percent.What is the company's WACC?

Question

Quizplus · Accepted Answer

MV_Debt = 1,500 × $989 = $1,483,500 MV_Equity = 74,000 × $35 = $2,590,000 MV_{D + E} = $1,483,500 + $2,590,000 = $4,073,500 R_S = 0.02 + 1.08(0.07)= 0.0956,or 9.56% R_B = 6.4% (given) WACC = ($2,590,000 / $4,073,500)(0.0956)+ ($1,483,500 / $4,073,500)(0.064)(1 − 0.34)= 0.0762,or 7.62%

Finally There! Has 1,500 Bonds Outstanding with a $1,000 Par