Answered

Welcome to Westonci.ca, the place where your questions are answered by a community of knowledgeable contributors. Explore thousands of questions and answers from knowledgeable experts in various fields on our Q&A platform. Get precise and detailed answers to your questions from a knowledgeable community of experts on our Q&A platform.

Jake's Sound Systems has 210,000 shares of common stock outstanding at a market price of $36 a share. Last month, Jake's paid an annual dividend in the amount of $1.593 per share. The dividend growth rate is 4%. Jake's also has 6,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 7% coupon, pay interest annually, and mature in 4.89 years. The bonds are selling at 99% of face value. The company's tax rate is 34%. What is Jake's weighted average cost of capital

Sagot :

jepessoa

Answer:

WACC = 6.92%

Explanation:

total equity = 210,000 x $36 = $7,560,000,weight of equity = 56%

cost of equity:

36 = 1.65672 / (Re - 4%)

Re = 8.602%

total bonds = $5,940,000, weight of bonds = 44%

bond YTM = 7.24%

after tax cost = 7.24% x 66% = 4.78%

WACC = (.56 x 8.602$) + (.44 x 4.78%) = 4.817 + 2.103 = 6.92%

YTM = (70 + 10/4.89) / (1990/2) = 72.04 / 995 = 7.24%

715

Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. We appreciate your visit. Our platform is always here to offer accurate and reliable answers. Return anytime. Stay curious and keep coming back to Westonci.ca for answers to all your burning questions.