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1. Given the following information on Ke-Ma-Gen Ltd., what is its WACC?               Debt: Number of bonds =...

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Finance

1. Given the following information on Ke-Ma-Gen Ltd.,what is its WACC?              

Debt:

  • Number of bonds = 10,000
  • Par value = $1,000
  • Coupon rate = 9% (semi-annual coupons)
  • Time to maturity = 10 years
  • Market value = 98% of par

Common equity:

  • Number of shares outstanding = 1,000,000
  • Par value = $1
  • Price per share = $3.50
  • Dividends per share = $0.70

Preferred equity:

  • Number of shares outstanding = 50,000
  • Price per share = $20
  • Dividend yield = 5%

Otherinformation:

  • Tax rate = 40%
  • Equity beta = 1.2
  • Market risk premium = 16%
  • Risk-free rate = 5%

Answer & Explanation Solved by verified expert
4.2 Ratings (720 Votes)
WACC weight of debt cost of debt weight of preferred stock cost of preferred stock weight of equity cost of equity market value of debt 10000 1000 98 9800000 market value of preferred stock 50000 20 1000000 market value of equity 1000000 35 3500000    See Answer
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1. Given the following information on Ke-Ma-Gen Ltd.,what is its WACC?              Debt:Number of bonds = 10,000Par value = $1,000Coupon rate = 9% (semi-annual coupons)Time to maturity = 10 yearsMarket value = 98% of parCommon equity:Number of shares outstanding = 1,000,000Par value = $1Price per share = $3.50Dividends per share = $0.70Preferred equity:Number of shares outstanding = 50,000Price per share = $20Dividend yield = 5%Otherinformation:Tax rate = 40%Equity beta = 1.2Market risk premium = 16%Risk-free rate = 5%

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