View the step-by-step solution to: Preferred Stock and WACC The Saunders Investment Bank has the

Preferred Stock and WACC The Saunders Investment Bank has the following financing out-
standing. What is the WACC for the company?

Debt: 40,000 bonds with a 7 percent coupon rate and a current price quote of
87.50. The bonds have 19 years to maturity. 170,000 zero coupon bonds with
a price quote of 6.85 and 29 years until maturity.

Preferred Stock:
1 10,000 shares of 7.25 percent preferred with a current price of $107 and a
par value of $100.

Common Stock:
1,600,000 shares of common stock. The current price is $72, and the beta of
the stock is 1.2.

The corporate tax rate is 40 percent, the market risk premium is 7.5 percent,
and the risk-free rate is 6.5 percent.
consider YTM = 5.53 %

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