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hjlf
2 years ago
7

You are given the following information for Watson Power Co. Assume the company’s tax rate is 24 percent. Debt: 14,000 6.3 perce

nt coupon bonds outstanding, $1,000 par value, 29 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. Common stock: 470,000 shares outstanding, selling for $65 per share; the beta is 1.16. Preferred stock: 20,500 shares of 4.1 percent preferred stock outstanding, currently selling for $86 per share. The par value is $100 per share. Market: 7 percent market risk premium and 5.2 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
Alenkinab [10]2 years ago
5 0

Answer:

10.18%

Explanation:

The computation of the WACC is shown below:

But before that following calculation is to be done

The value of debt is

= 14000 × $1,000 × 107%

= $14,980,000

The value of equity is

= 470,000 × $65

= $30,550,000

The value of preferred stock is

= 20,500 × $86

= $1,763,000

Now

value of total capital is

= $14,980,000  + $30,550,000 + $1,763,000

= $47,293,000

Now we find the cost of debt using excel function i.e.

= RATE(nper,pmt,pv,fv)) × 2

= RATE(29 × 2,1000 × 6.3% ÷ 2,-1000 × 107%,1000)) ×2

= 5.80%

Now  

Cost of common stock is

= 5.2% + 1.16 × 7%

= 13.32%

cost of preferred stock is

= (100 × 4.1%) ÷ 86

= 4.77%

Now finally  

WACC = weight of debt × cost of debt ×(1 - tax rate) + weight of equity × cost of equity + weight of preferred stock ×cost of preferred stock

= ($14,980,000 ÷ $47,293,000) × 5.80% × (1  - 24%)+($30,550,000 ÷ $47,293,000) × 13.32% + ($1,763,000 ÷ $47,293,000) ×4.77%

= 10.18%

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In fact a recent study carried on by listening to a series of audio recordings of patient-physician visits provided an insight that also showed that some behaviors in the pre-op consultation lead to the patient not disclosing all of his/her concern. For example, physicians often redirect patients at the beginning of the visit, giving patients less than 30 seconds to express their concerns.

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4 0
3 years ago
Your firm has net income of $357 on total sales of $1,380. Costs are $760 and depreciation is $110. The tax rate is 30 percent.
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Answer:

See below

Explanation:

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Cost

7 0
2 years ago
To be competitive firms must create and sustain core competencies that are in tune with their customer’s order winners (T/F)
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Answer:

The statement is: True.

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3 years ago
The transactions completed by Franklin Company during January, its first month of operations, are listed below. Assume that Fran
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Answer:

Issued check for a payment on account CP, subsidiary posting

Issued check for rent CP, No subsidiary posting

Received cash for a sale CP, No subsidiary posting

Issued an invoice to a customer R, subsidiary posting

Purchased a computer for cash CP, subsidiary posting

Received a check from a payment on account CR, subsidiary posting

Purchased equipment on account P, subsidiary posting

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3 years ago
A company provided the following direct materials cost information. Compute the total direct materials cost variance. Standard c
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Answer:

C. $78,250 Unfavorable.

Explanation:

We know,

Material cost variance = (Standard quantity × Standard price) - (Actual Quantity × Actual price)

Given,

Standard quantity = 405,000 units

Standard price = $2.00 unit

Actual Quantity = 403,750 units

Actual price = $2.20 unit

Putting the values into the formula, we can get

Material cost variance = (Standard quantity × Standard price) - (Actual Quantity × Actual price)

Material cost variance = (405,000 × $2.00) - (403,750  × $2.20)

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Therefore, C is the answer.

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