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Question 97  WACC, no explanation

A company has:

  • 10 million common shares outstanding, each trading at a price of $90.
  • 1 million preferred shares which have a face (or par) value of $100 and pay a constant dividend of 9% of par. They currently trade at a price of $120 each.
  • Debentures that have a total face value of $60,000,000 and a yield to maturity of 6% per annum. They are publicly traded and their market price is equal to 90% of their face value.
  • The risk-free rate is 5% and the market return is 10%.
  • Market analysts estimate that the company's common stock has a beta of 1.2. The corporate tax rate is 30%.

What is the company's after-tax Weighted Average Cost of Capital (WACC)? Assume a classical tax system.




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