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Filer Manufacturing has 7.8 million shares of common stock outstanding. The current share price is $48, and the book value per share is $4. Filer...

Filer Manufacturing has 7.8 million shares of common stock outstanding. The current share price is $48, and the book value per share is $4. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $7.8 million and a coupon rate of 6.5 percent and sells for 108.8 percent of par. The second issue has a face value of $59.0 million and a coupon rate of 7.0 percent and sells for 107.9 percent of par. The first issue matures in 8 years, the second in 27 years.


Suppose the company’s stock has a beta of 1.2. The risk-free rate is 2.6 percent, and the market risk premium is 6.5 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company’s WACC? (Do not round intermediate calculations and round your answer to 2 decimal places.

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8438905.xlsx

SOLUTION Bond 1
Bond 2
Total
Weighted cost of Bond Market
Book Value Value
7.80
8.48640
59.00
63.6610
66.80 72.14740
4.5121 Cost
4.2250
4.5500
- 4.5118 TABLE SHOWING CALCULATION OF WACC...

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