Crawford Enterprises is a publicity held company located in Arnold,Kansas.The fi
ID: 2767293 • Letter: C
Question
Crawford Enterprises is a publicity held company located in Arnold,Kansas.The firm began as a small tool and die shop but grew over its 35-year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of 2009 the firm's balance sheet appeared as follows: At present the form's common stock is selling for a price equal to its book value, and the firm's bonds are selling at par. Crawford's managers estimate that the market requires a return of 18 percent on its common stock, the firm's bonds command a yield to maturity of 9 a. What is crawford's weighted average cost of capital?Explanation / Answer
Value of Equity = $ 19,481,000
Value of Bonds = $10,000,000
Total capital = (19,481,000) + (10,000,000) = $29,481,000
Weight of Equity = (19,481,000) / (29,481,000) = 0.660798
Weight of Debt = (10,000,000) / (29,481,000) = 0.3392015
Cost of equity = 18%
Cost of Debt = 9%
WACC = (0.660798*18) + (0.3392015*9)
= (11.894364)+(3.0528135) = 14.9471775
WACC is 14.95%