Information on Gerken Power Co., is shown below. Assume the company’s tax rate i
ID: 2790244 • Letter: I
Question
Information on Gerken Power Co., is shown below. Assume the company’s tax rate is 40 percent.
10,400 9 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 94.5 percent of par; the bonds make semiannual payments.
13,900 shares of 5.95 percent preferred stock outstanding, currently selling for $96.10 per share.
Required:
Calculate the company's WACC.
10,400 9 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 94.5 percent of par; the bonds make semiannual payments.
Common stock: 229,000 shares outstanding, selling for $84.90 per share; beta is 1.34. Preferred stock:13,900 shares of 5.95 percent preferred stock outstanding, currently selling for $96.10 per share.
Market: 7.2 percent market risk premium and 5 percent risk-free rate.Explanation / Answer
WACC = 11.43%
Market value weight cost weight*cost equity 19,442,100 0.6352 14.65% 0.0931 debt 9,828,000 0.3211 5.77% 0.0185 preferred share 1,335,790 0.0436 6.19% 0.00