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GFC’s balance sheet shows a total of $25 million long-term debt with a coupon rate of...

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Finance

GFC’s balance sheet shows a total of $25 million long-termdebt with a coupon rate of 8.50%. The yield to maturity on thisdebt is 8.00%, and the debt has a total current market value of $27million. The company has 10 million shares of stock, and the stockhas a book value per share of $5.00. The current stock price is$20.00 per share, and stockholders' required rate of return,rs, is 12.25%. The company recently decided that itstarget capital structure should have 35% debt and 65% commonequity. The tax rate is 40%. Calculate WACCs based on book, market,and target capital structures. What is the sum of these threeWACCs?

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4.1 Ratings (575 Votes)
WACC based on target capital structures Weight of equity 1DA Weight of equity 1035 WE065 Weight of debt DA Weight of debt 035 WD035 After tax cost of debt cost of debt1tax rate After tax cost of debt 8104 48 WACCafter tax cost of debtWDcost of equityWE    See Answer
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GFC’s balance sheet shows a total of $25 million long-termdebt with a coupon rate of 8.50%. The yield to maturity on thisdebt is 8.00%, and the debt has a total current market value of $27million. The company has 10 million shares of stock, and the stockhas a book value per share of $5.00. The current stock price is$20.00 per share, and stockholders' required rate of return,rs, is 12.25%. The company recently decided that itstarget capital structure should have 35% debt and 65% commonequity. The tax rate is 40%. Calculate WACCs based on book, market,and target capital structures. What is the sum of these threeWACCs?

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