DecourcyW Inc. recently hired you as a consultant to estimatethe company’s WACC. You have obtained the followinginformation.
- The firm's noncallable bonds mature in 12 years. The bonds havea 10.50% annual coupon rate, a par value of $1,000, and a marketprice of $1,180.00. The bonds pay coupon payments semi-annually.The firm has 600,000 bonds outstanding.
- Common equity investors’ bond-yield risk premium is 5.5%.
- The risk-free rate is 1.85%, the market risk premium is 12.00%,and the common stock’s beta is 1.15.
- The firm has 40 million shares outstanding of common stocksthat sell at $27 per share. The firm just paid a dividend of $2.30per share, and the constant growth rate is expected to be5.75%.
- The firm would like to use the median (i.e. mid-point) of thethree methods (i.e. Bond-yield-risk premium method, CAPM, and DCF)to estimate the cost of equity, and it does not expect to issue anynew common stock.
- The firm has 6.5%, $100 par value preferred stocks. There are 3million shares outstanding. The preferred stock currently sells at$90 per share.
- The company’s tax rate is 21%.
What is its WACC? Do not round your intermediatecalculations.
