Ch12 WACC handout prob V_B

Ch12 WACC handout prob V_B - coupon rate, paid...

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Solution to Vaughn and Bushnell WACC practice problems Bonds No. outstanding 10,000 Price 950 Maturity, years 10 Coupon 11% YTM (cost) of bonds 11.87% N I PV PMT FV 20 5.9336% (950) 55 1,000 Loan Value 5,000,000 Rate (cost of bank debt) 13.00% Stock No. outstanding 100,000 Price 50 beta 1.2 Rf 6.00% Market risk premium 8.00% Cost of equity 15.60% Market values Weights Bonds 9,500,000 0.49 Loan 5,000,000 0.26 Stock 5,000,000 0.26 Total 19,500,000 1.00 Tax rate 40% WACC = (.49 × .1187 × .6) + (.26 × .13 × .6) + (.26 × .156) = 9.47% Vaughn and Bushnell Manufacturing (V&B) has 10,000 bonds outstanding with an 11%
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Unformatted text preview: coupon rate, paid semiannually. The bonds have 10 years till maturity and are currently selling at 95% of their $1,000 face value. In addition, V&B has a $5 million loan with a local bank at 13% interest and 100,000 shares of common stock ( = 1.2) selling at $50 per share. The t-bill rate is 6%, the market risk premium is 8%, and the corporate tax rate is 40%. What is Vaughn and Bushnells WACC?...
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This note was uploaded on 03/15/2012 for the course BUS-F 301 taught by Professor T during the Spring '12 term at IUPUI.

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