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[answered] 11.24 WACC for a firm: The Imaginary Products Co. currently


11.24 WACC for a firm: The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupc n payments) which have a maturity of 15 years and are currently priced at $1,440.03 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $12.00. The preferred shares offer an annual dividend of $1.20. Imaginary also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Imaginary is subject to a 40 percent marginal tax rate, then what is the firm?s weighted average cost of capital? um er Capital component outstanding Current price Bonds 300,000 $1,440.03 Preffered stock 2,000,000 $12.00 Common stock 14,000,000 $20.00 Coupon rate on debt 9% Coupon frequency (per year) 2 Bond maturity (years) 15 Preferred dividend (annual) $1.20 Expected dividend on common (D1) $2.20 Constant annual dividend growth rate (forev 5% ardinal tax rate 40% com nt tValue We ht fter-tax cost eferred stock mmon stock otal capital (market
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