Conslder the following Information for Evenflow Power Co., Debt maturity, sellin
ID: 2797735 • Letter: C
Question
Conslder the following Information for Evenflow Power Co., Debt maturity, selling for 105 percent of par, the bonds make semiannual payments. 120,000 shares outstanding, selling for $64 per share; the beta is 114. 17,000 shares of 7 percent preferred stock outstanding, currently selling for $108 per share. 10 percent market risk premlum and 6 percent risk-free rate. Common stock Preferred stock Market Assume the company's tax rate Is 35 percent Required: Find the WACC. (Do not round your intermediate calculations.) 0 11.98% O 12.51% 0 11.78% O 11.48% o 11.58%Explanation / Answer
WACC = cost of equity * equity + cost of debt * debt * (1-tax)
cost of equity = risk free rate + beta*risk premium
= .06 + 1.14*.1 = 0.174
debt = 5250000
equity = 7680000 + 128520 = 7808520 or
debt % = .4
equity% = .6
cost of debt = .08
sp wacc = .08*.4*(1-.35) + .6*.174 = 12.51%