12 Jan

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

by jagguarpaw On: Finance - 0 Comment

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%

 

 

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