Calculate the weighted average cost of capital for company

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Reference no: EM131360795

Company A is evaluating a project using the Net Present Value methodology. Management assesses the project as having substantially more risk than the firm’s current activities as a whole.

Company A has 1,000,000 shares of common stock outstanding, with a current market price of $12 per share. The company estimates their cost of equity to be 11%.

In addition, the company has 5,000 bonds outstanding with 10 years to maturity. The bonds have a par value of $1,000 and a current bond price of $1,105. The bonds have a coupon rate of 10% and the current yield to maturity is 8.4%

The company’s tax rate is 34%.

Calculate the Weighted Average Cost of Capital for Company A and then recommend a discount rate to use for the NPV evaluation of this project.

Show your work.

Reference no: EM131360795

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