View the step-by-step solution to:

Consider the following information for Evenflow Power Co., Debt:

Consider the following information for Evenflow Power Co.,

Debt: 6,000 7 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 104 percent of par; the bonds make semiannual payments and have a YTM of 6.64%.

Common stock: 126,000 shares outstanding, selling for $61 per share; the beta is 1.14.

Preferred stock: 21,500 shares of preferred stock outstanding, paying 5.5 percent on $100 of par, and currently selling for $106 per share.

Market: 7.5 percent market risk premium and 5 percent risk-free rate.

Assume the company's tax rate is 34 percent.

Required: Find the WACC. (Do not round your intermediate calculations.)

HINT: Use the Security Market Line to get the cost of the common equity. Use the perpetuity equation to get the cost of preferred equity. Don't forget to adjust the cost of debt for taxes (and don't convert the YTM into an EAR, but leave it as an APR). You will also need to calculate the market value of all three types of securities to get the capital structure weights."

Top Answer

Here's the explanation you needed for... View the full answer

553801_FIN.xls

Consider the following information for Evenflow Power Co.,
Debt: 6,000 7 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 104 percent of par; the bonds
make...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online