# Product has 2,500,000 shares of common stock outstanding

January 12, 2017 0 Comments

## 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 risk-free 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(rPM) 12.85%