Tempest Manufacturing has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. Tempest Manufacturing also has one bond issue outstanding. The bond issue has a face value of $70 million, a 7 percent coupon, and sells for 97 percent of par. The bonds mature in 21 years.
Suppose the most recent dividend was $4.10 and the dividend growth rate is 6 percent. Assume the par value of each bond is $1,000. The bonds make semiannual payments. The tax rate is 35 percent. As the first step in determining the company’s WACC, what weights would be used and how would you set up the equation for rWACC? You do not need to calculate any returns
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