Product has 2,500,000 shares of common stock outstanding
Question: Product has 2,500,000 shares of common stock outstanding
Product has 2,500,000 shares of common stock outstanding. The current share price is $26.54, and the book value per share is $11.27. Amaron also has two bond issues outstanding. The first bond issue has a face value (or book value) of $12,719,000 and a coupon rate of 7.10% and sells for 121.1% of PAR value. The second issue has a face value (or book value) of $4,314,000 and a coupon rate of 6.80% and sells for 116.0% of PAR value. The 7.10% coupon bond matures in 24 years, the 6.80% coupon bond matures in 12 years. Both bonds make semiannual payments. The tax rate is 32%.
Suppose stock has a beta of 1.2. The riskfree rate is 2.25%, and the market risk premium is 12.85%. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues.
WHAT IS THE WEIGHTED AVERAGE COST OF CAPITAL (WACC)
BOND DATA  
7.1% Coupon  6.80% Coupon  
Face Value for book value  $12,719,000  $4,314,000 
Coupon rate  7.1%  6.8% 
Bond price % of PAR  121.1%  116.0% 
Term to maturity  24%  12 
Tax rate  32%  32% 
STOCK DATA  
# shares outstanding  2,500,000 
Market value per share  $26.54 
Book value per share  $11.27 
Beta  1.20 
Risk free rate(r_{PM})  12.85% 
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