The Welton Mfg Company of Sioux Falls has a balance sheet with the following capital structure:
Common stock, Preferred stock and Debt.
Quantity
250,000 shares
1,500 bonds
10,000 of preferred
price
$18
105% of par value
par value
1,000
100
Additional information has been compiled by the CFO (Melissa Wheeld to assess the weighted average cost
of capital for the firm. The Beta of the firm is 1.25, common dividend growth rate of 4% for the foreseeable
future, preferred stock dividend of $1.00 per year in perpetuity, the last common stock dividend paid of
$0.86, market risk premium estimate of 5% and current t-bill yield of 3.5%.
The existing bond issue has 7 years to maturity, has a coupon rate of 5.5%, and the coupons are paid semi-
annually. Melissa estimates a corporate tax rate of 21%.
Using the information that has been provided to you and the computations that you have performed in the
previous two questions, the WACC of the company is [Select]
•9.38
•5.96
•0.79
•7.57