Western Electric has 35,000 ordinary shares outstanding at a price per share of $47 and a rate of return of 13.5%. The firm has 5,000 preference shares paying 7% dividend outstanding at a price of $58 a share. The preferred share has a par value of $100. The outstanding bond has a total face value of $450,000 and currently sells for 102% of face. The pre-tax yield-to-maturity on the bond is 8.49%.

Explanation:

Question A) to C):

Calculation of Total Market Value, Capital Structure and WACC:

Excel Spreadsheet:

Finance homework question answer, step 1, image 1

Excel Workings:

Finance homework question answer, step 1, image 2

Answers:

The total market value is $2,394,000.

The capital structure weight of debt is 19.173%, preferred stock is 12.114% and common stock is 68.713%.

The WACC is 11.88%.

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