Question: DEBT: 2000, 5%, $ 1000 par value, 30 year bonds are outstanding. The bonds trade at par. Interest is paid annually.
COMMON STOCK: 200,000 Shares are outstanding. They trade at $ 44 and the last dividend paid was $ 1.00. The firm is expected to grow at 10%.
The firm is in the 30% tax bracket.
a. Compute the WACC.
b. You find out that the beta of MPL is 1.2; the market risk premium is 6%. The risk-free rate is 4%. Compute the WACC.
c. Suppose the bond trades at $ 900. What happens to the WACC in part-a?
d. Suppose the bond trades at $ 1100. What happens to the WACC in part-a?
Please show all working and be legible.
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