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)
|7.1% Coupon||6.80% Coupon|
|Face Value for book value||$12,719,000||$4,314,000|
|Bond price % of PAR||121.1%||116.0%|
|Term to maturity||24%||12|
|# shares outstanding||2,500,000|
|Market value per share||$26.54|
|Book value per share||$11.27|
|Risk free rate(rPM)||12.85%|