Information on Janicek Power Co., is shown below. Assume the companys tax rate i
ID: 2627226 • Letter: I
Question
Information on Janicek Power Co., is shown below. Assume the companys tax rate is 34 percent. Debt: 8,600 7.9 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 104.5 percent of par; the bonds make semiannual payments. Common stock: 211,000 shares outstanding, selling for $83.10 per share; beta is 1.16. Preferred stock: 12,100 shares of 5.8 percent preferred stock outstanding, currently selling for $97.90 per share. Market: 7.05 percent market risk premium and 4.85 percent risk-free rate. Required: Calculate the company's WACC.
Explanation / Answer
Debt market value = 8600*1000*104.5% = 8987000
Equity marketvalue = 211000*83 = $17513000
Preferrrd stock market value = 12100*97.90 = 1184590
Tota market value = 27684590
WACC = 7.9%*0.66*8987000/27684590 + 13.028*17513000/27684590+ 5.8%*1184590/27684590 = 10.18% answer