Solution:
MV of equity=Price of equity*number of shares outstanding
MV of equity=51*43800
=2233800
MV of Bond=Par value*bonds outstanding*%age of par
MV of Bond=1000*5000*0.96
=4800000
MV of Preferred equity=Price*number of shares outstanding
MV of Preferred equity=83*10000
=830000
MV of firm = MV of Equity + MV of Bond+ MV of Preferred equity
=2233800+4800000+830000
=7863800
Weight of equity = MV of Equity/MV of firm
Weight of equity = 2233800/7863800
W(E)=0.2841
Weight of debt = MV of Bond/MV of firm
Weight of debt = 4800000/7863800
W(D)=0.6104
Weight of preferred equity = MV of preferred equity/MV of firm
Weight of preferred equity = 830000/7863800
W(PE)=0.1055
Cost of equity
As per CAPM , Cost of equity = risk-free rate + beta * (Market risk premium)
Cost of equity % = 3.6 + 1.54 * (7.5)
Cost of equity % = 15.15
Cost of debt
K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2
k=1
K =13x2
960 =∑ [(8*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^13x2
k=1
YTM = 8.5146699304
After tax cost of debt = cost of debt*(1-tax rate)
After tax cost of debt = 8.5146699304*(1-0.21)
= 6.726589245016
cost of preferred equity
cost of preferred equity = Preferred dividend/price*100
cost of preferred equity = 7/(83)*100
=8.43
WACC=after tax cost of debt*W(D)+cost of equity*W(E)+Cost of preferred equity*W(PE)
WACC=6.73*0.6104+15.15*0.2841+8.43*0.1055
WACC =9.3%
