Answer:
<em>WACC 10.07765%</em>
Explanation:
We solve for the cost of debt by solving for the discount rate which makes the future coupon payment and maturity of the bond equal to 1,020
This is solved using excel or a financial calculator
C 32.50
time 34
<em>rate 0.03153274</em>
PV $672.0015
Maturity 1,000.00
time 34.00
<em> rate 0.03153274</em>
PV 348.00
PV c $672.0015
PV m $347.9985
Total $1,020.0000
<u>annual cost of debt:</u>
0.031532 x 2 = 0.063064 = 6.31%
<u>debt outstanding:</u>
5,000 bonds x $ 1,000 x 102/100 = 5,100,000
<u>equity</u>:
105,000 shares x $59 each = 6,195,000
For the equity we solve using CAMP
risk free = 0.05
market rate = 0.09
premium market = (market rate - risk free) 0.085
beta(non diversifiable risk) = 1.17
<u>Ke 0.14945</u>
Now we solve for the WACC
D 5,100,000
E 6,195,000
V 11,295,000
Equity weight 0.5485
Debt Weight 0.4515
Ke 0.14945
Kd 0.0631
t 0.34
<em>WACC 10.07765%</em>