Pare Food is interested in calculating its weighted average cost of capital (WACC). The company’s CFO has collected the following information: The target capital structure consists of 40 percent debt and 60 percent common stock. The company has 20-year noncallable bonds with a par value of $1,000, a 9 percent annual coupon, and is now selling 92 1/4. Equity flotation costs are 2 percent. The company’s common stock has a beta of 0.8. The risk-free rate is 5 percent. The market risk premium is 4 percent. The company’s tax rate is 40 percent. Compute WACC

Pare Food is interested in calculating its weighted average cost of capital (WACC). The company’s CFO has collected the following information: The target capital structure consists of 40 percent debt and 60 percent common stock. The company has 20-year noncallable bonds with a par value of $1,000, a 9 percent annual coupon, and is now selling 92 1/4. Equity flotation costs are 2 percent. The company’s common stock has a beta of 0.8. The risk-free rate is 5 percent. The market risk premium is 4 percent. The company’s tax rate is 40 percent. Compute WACC

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

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Patilya Pata Food is interested in calculating its weighted average cost of capital. The company's CFO has collected the following information: ● The target capital structure consists of 40% debt and 60% common stock • The company has a 20-year noncallable bonds with a par value of P1,000, a 9% annual coupon, and is selling now at 92-1/4. Equity flotation costs are 2% • The company's common stock has a beta of 0.80 •The risk-free rate is 5%; and market risk premium is 4% The company's tax rate is 40% Show complete solution ●
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