Reference no: EM133074962
Question - As a financial manager, you need to review the cost of capital for HK Express Ltd. The accounting department has provided you the latest financial data as follows:
Long Term 7,000 5% coupon bonds outstanding, issued 5 years ago with 10 years
Debt: left to maturity, interest paid semi-annually and par value of $1,000.
These bonds are currently trading at par value in the market.
Common 80,000 shares of common stock selling for $60 per share.
Stock: The stock has a beta of 0.90 and will pay a dividend of $2.80 next year.
The dividend is expected to grow by 6% per year indefinitely.
Preferred 2,500 shares of 5.5% preferred stock selling at $80 per share. The par stock: value is $100.
Market: A 5% return on US 90-days treasury bills, expected return on market 12%.
Inflation rate is 2%.
Extracted data from the company's latest statement of financial position
$(000)
Cash 2,000
Accounts Receivable 2,500
Accounts Payable 2,000
Long Term Debt 5,500
Common Stock Equity 7,560
Preferred Stock Equity 140
The average tax rate for the company is 25%. Its marginal tax rate is 30%
Calculate the Weighted Average Cost of Capital (WACC) for HK Express Ltd.