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asambeis [7]
3 years ago
10

You are given the following information for Cleen Power Co. Assume the company’s tax rate is 40 percent. Debt: 5,000 6.6 percent

coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 109 percent of par; the bonds make semiannual payments. Common stock: 380,000 shares outstanding, selling for $56 per share; the beta is 1.12. Market: 5 percent market risk premium and 4.6 percent risk-free rate. What is the company's WACC?
Business
1 answer:
Misha Larkins [42]3 years ago
7 0

Answer:

    WACC   = 8.84%

Explanation:

Face value= $ 1000    (assume)

Current price = 1000* 109% = 1090

semianual interest =1000 *.066*6/12 = 33

semiannual months = 20 *2 = 40

Yield to maturity of bonds = [semiannual interest +(face value -current price) /months]/[(face value+price)/2]

                                            = [33 + (1000- 1090 )/40 ]/[(1000 +1090)/2]

                                            = [33 + (-90/40) ] / [2090 /2]

                                           = [33 - 2.25 ] /1045

                                          = 30.75 /1045

                                       = .0294 or 2.94% semiannually or (2.94*2) =5.88 % annually

After tax cost of debt = 5.88 (1- .40 ) = 3.528 %

Market value of bond = 1090 *5000 = $ 5450000

b)cost of equity =Rf +[beta*market premium ]

                           = 4.6 + [1.12 * 5]

                            = 4.6 + 5.6

                            = 10.20 %

market value of equity = 380000*56 =$ 21280000

Total market value of debt and equity =5450000 +21280000

                                                                  = $ 26730000

weight of debt = 5450000/26730000 = .2039

weight of equity = 21280000 /26730000 = .7961

WACC = (after tax cost of debt *WD)+(cost of equity *We)

            = (3.528 * .2039 )+(10.20 * .7961)

              = .7194 + 8.1202

              = 8.84%

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8 0
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<em>therefore,</em>

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Describe the elements that must be present for the courts to rule that a contract is unconscionable?
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The elements that would have to be in place for a contract to be unconscionable would be that

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In order to be a contract, one person would have to create a bargain and the other would be the one that would agree to the terms.

It is unconscionable at the time when the contract is done and the person or one of the parties is found not to have been able to make the contract agreement at their right frame of mind. In this case, the law has the power to protect this party.

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