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Homework answers / question archive / Rao Services' CFO is interested in estimating the company's WACC and has collected the following information: The company has bonds outstanding that mature in 30 years with an annual coupon of 10 percent, compounded quarterly

Rao Services' CFO is interested in estimating the company's WACC and has collected the following information: The company has bonds outstanding that mature in 30 years with an annual coupon of 10 percent, compounded quarterly. The bonds have a face value of $1,000 and sell in the market today for $655. The risk-free rate is 6 percent. The return on market is 14 percent. The stock's beta is 1.3. Preferred stocks are currently traded at $150 with an expected rate of dividend is 20%, however 5% of floatation cost will be incurred while issuing new stocks. The company's tax rate is 30 percent. The company's target capital structure consists of 50 percent common stock and 30 percent debt and 20% preferred stocks. The company uses the CAPM to estimate the cost of cost of common stock and does not include flotation costs as part of its cost of capital. What is the company`s WACC?

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