3. Given the following information for Janicek Power Co., find the WACC. Assume the company’s tax rate is 35%.

Debt: 8,500 7.2% coupon bonds outstanding, $1000 par value, 25 years to maturity, selling for 118% of par; the bonds make semiannual payments
Common Stock: 225,000 shares outstanding, selling for $87 per share; beta is 1.15
Preferred Stock: 15,000 shares of 4.8%preferred stock outstanding, currently selling for $98 per share
Market: 7% market risk premium and 3.1% risk-free rate

HARD HUHN?

WACC= (E/V) * Re + (D/V) * Rd * (1-Tc)

8.48

To calculate the weighted average cost of capital (WACC) for Janicek Power Co., we need to determine the cost of each component of the company's capital structure and weight them based on their proportion in the total capital.

1. Debt:
a. Calculate the current market value of the debt:
Number of bonds = 8,500
Par value = $1,000
Market value = 1.18 * Par value = 1.18 * $1,000 = $1,180
Total market value of debt = Number of bonds * Market value = 8,500 * $1,180

b. Calculate the cost of debt:
Coupon rate = 7.2%
Semiannual payment = Coupon rate * Par value / 2 = 7.2% * $1,000 / 2
Number of semiannual payments = 25 * 2 = 50
Current yield to maturity = Coupon payment / Market value = (Semiannual payment / 2) / $1,180
Calculate the discount rate for the bonds using a financial calculator or Excel function: N = 50, PMT = Semiannual payment / 2, FV = $1,000, PV = -Market value

2. Preferred Stock:
Number of preferred shares = 15,000
Preferred dividend rate = 4.8%
Current market price per share = $98

3. Common Stock:
Number of common shares = 225,000
Current market price per share = $87
Beta = 1.15
Risk-free rate = 3.1%
Market risk premium = 7%

Now that we have the information required for the calculation, we can proceed to calculate the cost of each component and the WACC formula:

WACC = (Weight of Debt * Cost of Debt) + (Weight of Preferred Stock * Cost of Preferred Stock) + (Weight of Common Stock * Cost of Common Stock)

1. Calculate the weights for each component:
Weight of Debt = Total market value of debt / Total market value of the company's capital structure
Weight of Preferred Stock = (Number of preferred shares * Current market price per share) / Total market value of the company's capital structure
Weight of Common Stock = (Number of common shares * Current market price per share) / Total market value of the company's capital structure

2. Calculate the cost of each component:
Cost of Debt = Yield to Maturity of the bond

Cost of Preferred Stock = Preferred dividend rate / Current market price per share

Cost of Common Stock = Risk-free rate + (Beta * Market risk premium)

3. Plug in the values into the WACC formula and calculate the final WACC value.

Note: The WACC is the weighted average cost of capital and represents the average rate of return required by all investors (debt and equity holders) for financing the company's projects.