TAFKAP Industries has 8 million shares of stock outstanding selling at $17 per share and an issue of $20 million in 7.5 percent,annual coupon bonds with a maturity of 15 years,selling at 109 percent of par ($1,000).If TAFKAP's weighted average tax rate is 34 percent and its cost of equity is 12.5 percent,what is TAFKAP's WACC?

Question

Quizplus · Accepted Answer

Step 1: cost of debt => PV = −1090; PMT = 75; FV = 1000; N = 15; => I = 6.54
Step 2: 8 × 17/[8 × 17 + 1.09 × 20]12.5%+ 20 × 1.09/[8 × 17 + 1.09 × 20] × 6.54% × [1 − 0.34] = 11.37%

TAFKAP Industries Has 8 Million Shares of Stock Outstanding Selling