First Rate Ballroom, Inc, a national convention planner has 2, 500 common shares and 1,000 bonds outstanding. Its securities have been performing very well in the marketplace. It enjoys a common stock price of $45 per share, up from $35 a year ago. It bonds have also performed well, currently priced at $950 per bond, up from $899 a year ago. It stock has a beta coefficient of 2.5 and a market risk premium of 8.5%. The yield on 30-year Treasury Bonds is 5.5%. First Rate Ballroom's bonds are rather typical for the industry having 30 year maturities, 5% coupon rates, and $1000 face values. What is the WACC of First Rate Ballroom? First Rate is in the 35% marginal tax rate.
Second Rate Ballroom, Inc, a national convention planner has 1, 500 common shares and 2,000 bonds outstanding. Its securities have been performing very well in the marketplace. It has a common stock price of $35 per share, down from $35 a year ago. Its bonds have also not performed well, currently priced at $750 per bond, down from $1, 100 a year ago. It stock has a beta coefficient of 3.5 and a market risk premium of 8.5%. The yield on 30-year Treasury Bonds is 5.5%. First Rate Ballroom's bonds are rather typical for the Industry having 30 year maturities, 10% coupon rates, and $1000 face values. What is the WACC of Second Rate Ballroom? First Rate is in the 35% marginal tax rate.