80.2K

Verified Solution

Link Copied!

In addition to the bonds and preferred stock described in requirements $1$ and $2,$ Micro Advantage has $60,000$ shares of common stock outstanding that has a par

value of $$10$ per share and a current market price of $$150$ per share. The expected after$-$tax market return on the firm's common equity is $20\%.$ What is Micro

Advantage's weighted$-$average cost of capital $($WACC$)?($Round "Interest or Dividend Rate", "After$-$tax Rate or Expected Return" and "Cost of Capital Components"

to $2$ decimal places $($i$.$e$..1234=12\mathrm{.}34\%),$ "Weights" to $3$ decimal places, and other answers to the nearest whole dollar amount.$)$Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis of this information you are asked to respond to the following three questions:

Required:

$1.$ Micro Advantage issued a $$5,100,000$ par value, $20-$year bond a year ago at $98($i$.$e$.,98\%$ of par value$)$ with a stated rate of $7\%.$ Today, the bond is selling at $105($i$.$e$.,105\%$ of par value$).$ If the firm$$s tax bracket is $30\%,$ what is the current after$-$tax cost of this debt?

$2.$ Micro Advantage has $$5,060,000$ preferred stock outstanding that it sold for $$22$ per share. The preferred stock has a per share par value of $$25$ and pays a $$3$ dividend per year. The current market price is $$30$ per share. The firm$$s tax bracket is $30\%.$ What is the after$-$tax cost of the preferred stock?

$3.$ In addition to the bonds and preferred stock described in requirements $1$ and $2,$ Micro Advantage has $60,000$ shares of common stock outstanding that has a par value of $$10$ per share and a current market price of $$150$ per share. The expected after$-$tax market return on the firm$$s common equity is $20\%.$ What is Micro Advantage$$s weighted$-$average cost of capital $($WACC$)?$

Answer & Explanation Solved by verified expert

See Answer