Asked by
Alicia Lockett
on Dec 09, 2024
Verified
Given the following information for Jano Corp. find the WACC. Assume the company's tax rate is 35%. Bonds: 10,000 7% coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 102 % of par; the bonds make semi-annual payments. Common Shares: 400,000 shares outstanding, selling for $50 per share; the beta is 1.15. Preferred shares: 25,000 shares of 5% preferred stock outstanding, currently selling for $65 per share. 8% market risk premium and 4% risk-free rate.
A) 9.97
B) 10.17%
C) 11.37%
D) 12.57%
E) 13.77%
WACC
Stands for Weighted Average Cost of Capital, a measure that gives an idea of a company's cost of capital from all sources, including stocks and bonds.
Tax Rate
The specific percentage at which income is taxed for individuals and corporations.
Bonds
Bonds are fixed-income instruments that represent a loan made by an investor to a borrower, typically corporate or governmental, which pays periodic interest payments and the return of the principal at maturity.
- Acquire knowledge about the Weighted Average Cost of Capital (WACC) and its constituent parts.
- Estimate the cost associated with distinct capital variations, including equity, preferred shares, and debt instruments.
- Assess the effect that taxation has on the cost of capital investments.
Verified Answer
YS
Learning Objectives
- Acquire knowledge about the Weighted Average Cost of Capital (WACC) and its constituent parts.
- Estimate the cost associated with distinct capital variations, including equity, preferred shares, and debt instruments.
- Assess the effect that taxation has on the cost of capital investments.