FIN 310 NU Accounting Finding & Calculating the WACC Questions

Problems

WACC Problem 1 (12-14) – Finding the WACC (2.5 Points).   Given the following information for Lightning Power Co., find the WACC.  Assume the company’s tax rate is 21%.

Debt: 10,000 6.4 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments.

Common stock:   495,000 shares outstanding, selling for $63 per share; beta is 1.15.

Preferred stock:  35,000 shares of 3.5 percent preferred stock outstanding, currently selling for $72 per share.

Market: 7 percent market risk premium and 3.2 percent risk-free rate.

WACC Problem 2 (12-17) – Calculating the WACC (2.5 Points).   Given the following information for Parrothead Enterprises, find the WACC.

Debt:  9,700  7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 105.75.  These bonds pay interest semiannually.

Common stock:   260,000 shares outstanding, selling for $65.20 per share. The stock has a beta of .97 and just paid a dividend of $3.40.  The dividend is expected to grow by 5.2 percent per year indefinitely.

Preferred stock:  8,700 shares of 4.6 percent preferred stock outstanding, currently selling for $94.70 per share.

Market: 11.3 percent expected return, 3.95 percent risk-free rate, and a 22 percent tax rate.

Stephenson Recapitalization – Chapter Case Questions # 1-5 (Each question 1 pt each for 5 pts total for the case).

Stephenson Real Estate Recapitalization – Please be sure to answer all questions and sub-questions of the case and show ALL work and calculations. Most of the questions will work off the data calculated from the previous question answered, so be sure to answer your case in numerical sequence (do not skip questions).

Week 4 Final Ass
Cost of Capital
WACC Problems
Input boxes in tan
Output boxes in yellow
Given data in blue
Answers in green
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Long-Term Financing
Case Study
Problem 1 Finding the WACC
Given the following information for Lightning Power Co., find the WACC. Assume the company’s t
Debt : 10,000 6.4 percent coupon bonds outstanding, $1,000 par value, 25 years to
maturity, selling for 108 percent of par; the bonds make semiannual payments.
Common Stock : 495,000 shares outstanding, selling for $63 per share; beta is 1.15.
Preferred Stock : 35,000 shares of 3.5 percent preferred stock outstanding, currently selling
for $72 per share.
Market : 7 percent market risk premium and 3.2 percent risk-free rate.
Input Area:
Tax rate
Debt
Bonds outstanding
Settlement date
Maturity date
Annual coupon rate
Coupons per year
Bond price (% of par)
Redemption value (% of par)
Par value
21%
$
10,000
01/01/00
01/01/25
6.40%
2
108
100
1,000
= bE
$
495,000
1.15
63