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The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding,$14.49
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The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding,
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The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding,
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The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding,
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The following market information was gathered for the Blender Corporation. The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding, selling for $40.00 per share and 50,000 shares of common sto...
there is not enough information to answer this question because there is no information provided
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The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding,
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The following market information was gathered for the Blender Corporation.
The firm has 1,000 bonds outstanding, each selling for $1,100.00 with a
required rate of return of 8.00%. Blenders has 5,000 shares of preferred
stock outstanding, selling for $40.00 per share and 50,000 shares of
common stock outstanding, selling for $18.00 per share. If the preferred
stock has a required rate of return of 11.00% and the common stock
requires a 14.00% return, and the firm has a corporate tax rate of 30%,
then calculate the firm's WACC adjusted for taxes.
A) 9.53%
B) 10.73%
C) 6.77%
D) There is not enough information to answer this question because there is
no information provided about the amount of retained earnings held by the
firm.
Solution:
Value of common stock = 50,000 x $18 = $900,000
Value of bonds = 1,000 x $1,100 = $1,100,000
Value of preferred stock = 5,000 x $40 = $200,000
Total value = $900,000 + $1,100,000 + $200,000 = $2,200,000
Weight of common stock = $900,000/$2,200,000 = 0.4091
Weight of preferred stock = $200,000/$2,200,000 = 0.091
Weight of bonds = $1,100,000/$2,200,000 = 0.5
WACC = wd*kd*(1 – t) + we*ke + wp*kp
= 0.5*8%*(1 – 0.3) + 0.4091*14% + .091*11%
= 9.53%
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