You have been asked to calculate the WACC of a company that you firm is trying to value. The firm has the following element of capital:
1. Short Term Debt
Market Value = $30 million; Return = 4.50%
2. Long Term Debt
Par (Face Value) = $450 million; Coupon rate = 6.00%; Maturity 10 years: Current yield to maturity is 6.20%
3. Common Equity
a. Class A shares (publically Traded)
30 million share outstanding; beta = 1.20; Latest Price = $22.40
b. Class B Shares (Not publically Traded)
10 million Share Outstanding; Estimated Beta = 1.40; Last Dividend Paid: $2.00 per share; Expected growth rate in dividends = 5%
4. Preferred Stock
2 million shares outstanding; Market Price = 100; Dividend Share = $5.00
Note: Do not use Floatation Cost i.e. Flotation cost = 0; Risk free rate = 2.00% and expected return on the market is 6.00%.
The firm’s tax rate is 40%