You are given the following information concerning Parrothead Enterprises: Debt: 9,200 6.4 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 104.50. These bonds have a par value of $1,000 and pay interest semiannually. Common stock: 235,000 shares of common stock selling for $64.70 per share. The stock has a beta of .92 and will pay a dividend of $2.90 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. Preferred stock: 8,200 shares of 4.60 percent preferred stock selling at $94.20 per share. Market: 11.8 percent expected return, a risk-free rate of 3.70 percent, and a 22 percent tax rate. What is the firm's cost of each form of financing? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Aftertax cost of debt Cost of preferred stock Cost of equity % % % Calculate the WACC for the company. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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You are given the following information concerning Parrothead Enterprises:
Debt:
9,200 6.4 percent coupon bonds outstanding, with 23 years to
maturity and a quoted price of 104.50. These bonds have a par value
of $1,000 and pay interest semiannually.
Common stock: 235,000 shares of common stock selling for $64.70 per share. The
stock has a beta of .92 and will pay a dividend of $2.90 next year. The
dividend is expected to grow by 5.2 percent per year indefinitely.
Preferred stock: 8,200 shares of 4.60 percent preferred stock selling at $94.20 per
share.
Market:
11.8 percent expected return, a risk-free rate of 3.70 percent, and a 22
percent tax rate.
What is the firm's cost of each form of financing? (Do not round intermediate
calculations and enter your answers as a percent rounded to 2 decimal places, e.g.,
32.16.)
Aftertax cost of debt
%
Cost of preferred stock
%
Cost of equity
%
Calculate the WACC for the company. (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC
%
Transcribed Image Text:You are given the following information concerning Parrothead Enterprises: Debt: 9,200 6.4 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 104.50. These bonds have a par value of $1,000 and pay interest semiannually. Common stock: 235,000 shares of common stock selling for $64.70 per share. The stock has a beta of .92 and will pay a dividend of $2.90 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. Preferred stock: 8,200 shares of 4.60 percent preferred stock selling at $94.20 per share. Market: 11.8 percent expected return, a risk-free rate of 3.70 percent, and a 22 percent tax rate. What is the firm's cost of each form of financing? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Aftertax cost of debt % Cost of preferred stock % Cost of equity % Calculate the WACC for the company. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
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