1) How to simplify computing WACC? Hatch Corporation has 1M shares of favoured stock and 7.5M shares of common stock. Firm’s tax rate is 40%. Other information regarding company’s cost of capital is as follows:
i) Company’s bonds have 20 years left to maturity, pay $35 semi-annually, and are presently trading at $1,025. There are 160,000 of these bonds outstanding.
ii) The company’s favoured stock sells for $42 a share and pays the annual dividend of $4 a share.
iii) The company’s general stock sells for $28 per share, and is expected to pay the dividend of $2 a share at the ending of year. The dividend is expected to rise at the constant rate of 7% a year. The book value of these shares is= $12.50.
What is the company’s weighted average cost of capital (WACC)?