Reference no: EM132893963
Question - XYZ Company has the following capital structure:
Financing source Book Value short term debt 3,300,000
Debt 35,700,000
Common equity 98,400,000
Total 137,400,000
1. Short term debt is permanent in nature. The company currently pays 6% and short term borrowing costs not expected to change. Short term debt valued at Par.
2. Long term debt is 12 yr, 7.5% coupon bond paid annually. Bond currently trades at 102%.
3. 25 million common shares outstanding with market price of 11$.
4. Based on forecases, anticipated that new equity capital will come from internallt. Net income for the most recent year was 20 million $ and company tax rate is 35%.
5. 1 year government treasury bills are yeilding 3% while 10 year government bonds yeild 5.5%. inflation is 1.5%
6. Beta is 1.2 and the market risk premium is 5%. Dividends are going to start to be paid next year. Dividends will be 40%. of earnings Groeth rate in earnings is expected to be 8% per year.
Calculate company's WACC based on above information.
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