# Question and Answer: You Are Given The Following Information For Huntington…….

 You are given the following information for Huntington Power Co. Assume the company’s tax rate is 40 percent.
 Debt: 7,000 7.4 percent coupon bonds outstanding, \$1,000 par value, 20 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 460,000 shares outstanding, selling for \$64 per share; the beta is 1.07. Market: 7 percent market risk premium and 5.40 percent risk-free rate.
What is the company’s WACC? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

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Cost of debt = 7.4%

Tax rate = 40%

Therefore, after tax cost of debt = 7.4 (1-0.40) = 4.44%

Cost of equity = Risk free return + Market risk premium * Beta

= 5.4 + 7 * 1.07 = 12.89%

Market value of debt = 7,000 debt@103% of \$1,000 i.e. @1,030 = \$ 7,210,000

Market value of equity = 460,000 shares @\$64 = \$29,440,000

Weightage of debt = 7,210,000/(7,210,000 + 29,440,000) = 0.20

Weight of equity = 1- 0.20 = 0.80

Therefore, weight average cost of capital (WACC) = 0.20*4.44 + 0.80 * 12.89

= 11.2%