Question

The Carla Vista Products Co. currently has debt with a market value of $225 million outstanding. The debt consists of 9 percent coupon bonds remiannual coupon 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 $13 per share. The preferred shares pay an annual dividend of $120. Carla Vista also has 14 million shares of common stock outstanding with a price of $20.00 per share. The form 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 Carla Vista is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital? Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem) Calculate the weights for debt, common equity, and preferred equity (Round intermediate calculations and final answers to 4 decimal places, ... 1.2514.) Debt Preferred equity Common Equity e Textbook and Media 1.2514 and Anel answer to 2 decimal places, 15.25% Calculate the cost of debt (Round intermediate calculations to decimal places Cost of debt e Textbook and Media 15.25 ) s 1.2514 and final answer to 2 decimal places, Calculate the cost of preferred equity (Round intermediate calculations to 4 decimal places, Cost of preferred equity e Textbook and Media

Answer 1

fix X -+C172/$C$181 D172 A В C D E Market value WACC (Cost %xWeights) 171 After-tax cost % Market value weights 172 Common equity 16.00% $ 280,000,000 8.44% 0.5273 2.2/20+5% 173 -14000000*20 174 9.23% $ 175 Preferred stock 0.0490 0.45% 26,000,000 176 -1.2/13 2000000*13 177 2.90% $ 225,000,000 178 Bonds 1.23% 0.4237 =RATE(15*2,90/2,-1440.03,1000,0)*2* (1-40%) 179 180 Total $531,000,000.0 181 1.0000 182 183 Weighted average cost of capital (WACC) 10.12% 184 0.4237 185 Weight of debt 186 Weight of preferred stock 187 Weight of common stock 188 Cost of debt 0.0490 0.5273 4.84% 189 Cost of preferred stock 190 Cost of common equity 9.23% 16.00% 10.12% 191 WACC

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