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

The WACC is calculated using the formula: WACC = (E/V * Re) + (D/V * Rd * (1-Tc)), where E is the market value of equity, V is the total market value of the firm's financing (equity + debt), Re is the cost of equity, D is the market value of debt, Rd is the cost of debt, and Tc is the tax rate. The cost of equity (Re) is calculated using the CAPM formula: Re = risk-free rate + beta * market risk premium. The cost of debt (Rd) is the yield to maturity. Plugging in the given values, the WACC is approximately 7.62%.

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