Help calculating WACC (finance)?

Baker’s Footwear has 8,000 shares of common stock outstanding at a price per share of $64 and a rate of return of 15 percent. The firm has 2,000 shares of 6 percent preferred stock outstanding at a price of $54 a share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $100,000 and a market price equal to 102 percent of face value. The yield-to-maturity on the debt is 9.36 percent. What is the firm’s weighted average cost of capital if the tax rate is 35 percent?

First determine the annual cost, or dividends expected, and Market Value of each class.
Common – 8,000 shs at $64, or $512,000 MV, paying 15% or $76,800.
Preferred – 2,000 shs at $54, or $108,000 MV, paying $6, or $12,000. A return of 11% on MV.
Debt – $102,000 MV, paying 9.36% less 35% tax, or 6.08% net. Annual cost = $6,202.

Now add up the total annual payout – 76,800+ 12,000+ 6,202 = 95,002. divided by total Market Value of $722,000 = 13.16% WACC

News Update: Citigroup Raises Nike Target to $86 Ahead of Investor Day (NKE,C)

Comments are closed