Big Water Ltd currently has the following capital structure:
Debt: $4,500,000 paying 9.5% coupon bonds outstanding with 12 years to maturity, an annual before-tax yield to maturity of 8% on a new issue. The bonds currently sell for $1,113 per $1,000 face value.
Ordinary Shares: 65,000 shares outstanding currently selling for $75 per share. The company just paid a $6.50 dividend per share and is experiencing a 6% growth rate in dividends, which it expects to continue indefinitely.
(Note – The firm’s marginal tax rate is 30%.)
- Calculate the current total market value of the company.
- Calculate the capital structure of the company.
- Calculate the weighted average cost of capital (WACC) for the firm.