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

## 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(r_{PM}) |
12.85% |