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Use the following data for securities issued by Vandelay Industries to answer questions:
Bonds: The company issued 240,000 bonds. The bonds have a $1,000 face value with 7.5% coupons with annual payments, 20 years to maturity, and currently sell for $940. The marginal tax rate is 40%.
Equity: The company has 9,000,000 shares of (common) stock outstanding, selling for $71 per share. The company’s beta is 1.2, the risk free rate is 1%, and the market risk premium is 10%.
What is the company’s weighted average cost of capital?
Walk me through this problem step by step or write the formula with the numbers filled in.
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