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Anderson Corporation has 1 million shares of common stock outstanding, 1/2 million shares of preferred stock,...

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Finance

Anderson Corporation has 1 million shares of common stockoutstanding, 1/2 million shares of preferred stock, and 20,000 3.5%semiannual bonds outstanding. The common stock has a beta of 1.2.The corporate bond has a par value of $1,000 each and matures in 14years. Currently the bonds are selling at 94% of their face values.The market risk premium is 9%. The risk-free rate is 3%. The commonstock sells for $40 per share. The preferred stock sells for $75per share and the preferred dividend is $6 per share. IF thecorporate tax rate is 34%;

A) What is the after-tax cost of debt capital? Show formulas

B) What is the cost of common equity? Show formulas

C) What is Anderson's WACC? Show formulas

Answer & Explanation Solved by verified expert
3.7 Ratings (389 Votes)
Firms Market Value Capital Structure Capital Calculation Market Value Capital Structure Weights Debt 18800000 96300000 01952 Preferred Stock 37500000 96300000 03894 Equity 40000000 96300000 04154 Market Value of each capital Structure Debt 18800000 20000 Bonds x 940 per bond Preferred Stock 37500000 500000 Shares x 75 per share Equity 40000000 1000000    See Answer
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Anderson Corporation has 1 million shares of common stockoutstanding, 1/2 million shares of preferred stock, and 20,000 3.5%semiannual bonds outstanding. The common stock has a beta of 1.2.The corporate bond has a par value of $1,000 each and matures in 14years. Currently the bonds are selling at 94% of their face values.The market risk premium is 9%. The risk-free rate is 3%. The commonstock sells for $40 per share. The preferred stock sells for $75per share and the preferred dividend is $6 per share. IF thecorporate tax rate is 34%;A) What is the after-tax cost of debt capital? Show formulasB) What is the cost of common equity? Show formulasC) What is Anderson's WACC? Show formulas

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