You are given the following information for Watson Power Co. Assume the company’s tax rate is 25 percent.
Debt: 25,000 7.4 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 106 percent of par; the bonds make semiannual payments.
Common stock: 580,000 shares outstanding, selling for $76 per share; the beta is 1.15.
Preferred stock: 26,000 shares of 5.2 percent preferred stock outstanding, currently selling for $97 per share.
The par value is $100 per share. Market: 6 percent market risk premium and 4.8 percent risk-free rate.
What is the company’s WACC?
