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Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2% if its current tax rate is 40%, how much higher will Turnbulls weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7% However, if it is necessary to raise new common equity, it will carry a cost of 16.8% 0.90% o 0.95% 0.75% 0.94% Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,708,000 in capital by issuing $750,000 of debt at a before-tax cost of 11.1%, $78,000 of preferred stock at a cost of 12.2%, and $880,000 of equity at a cost of 14.7%. The firm faces a tax rate of 40%. what will be the WACC for this project? Consider the case of Kuhn Co. Kuhn Co. is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Kuhn has noncallable bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10%, and a market price of $1,050.76. The yield on the companys current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $8 at a price of $92.25 per share Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $22.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40% Determine what Kuhn Companys WACC will be for this projectplease help

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Home nert Page Layout Formulas Data Review View dd-Ins as Cut ta copy. Σ AutoSum Wrap Text B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 conditional Format . Cell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard Alignment Number Cells GR2 GR GS GT GU GW GX GY HA HB WACC (COMMON EQUITY) NOTE 1 kd (AFTER TAX) kd-11.1 (1-04)-6.66% ANS 1 SOURCE COMMON EQUITY DEBT PREFERRED STOCK 4 WEIGHT COC(96) WEIGHTED COST 36% 58% 6% 100% NOTE 2 kp-12.2 % GIVEN 14.70% 6.66% 12.20% 5.292% 3.863% 0.732% 6 NOTE 3 COST OF COMMON EQUITY-14.7% COST OF NEW COMMON EQUITY-16.8% 8 WACC 9.89% 10 WACC (NEW COMMON EQUITY) B*C 12 13 14 15 16 17 18 19 20 /4 SOURCE COMMON EQUITY DEBT PREFERRED STOCK WEIGHT COC (96) WEIGHTED COST 36% 5896 6% 100% 16.80% 6.66% 12.20% 6.048% 3.863% 0.732% WACC= 10.64% INCREASE IN WACC 10.64%-9.89% ANSWER 0.75% | KE CAPM , UTILITY, SH beta bond c DGM future INDEX INTL CAP BUDLEASING PV, FV, ANNUITYDIR cleanYIELD bond cap stru WACC RESI ex di 福 130% rences: CF135 11-01-2019Home nert Page Layout Formulas Data Review View dd-Ins Cut E AutoSum Wrap Text ta copy ▼ в 1 프· ー· 鱼, Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard GU34 GR Alignment Number Cells GS GT GU GV GW GX GY GZ НА HB 21 22 ANS2 WACC 23 24 25 26 27 28 29 30 31 32 SOURCE COMMON EQUITY DEBT PREFERRED STOCK B*C WEIGHTED COST 7.5738% 2.9245% 0.5571% AMOUNT WEIGHT COC (%) 880000 750000 78000 1708000 52% 44% 5% 100% 14.70% 6.66% 12.2096 11.45% ANSWER: (D) : 11.45% 34 35 36 37 38 39 1 KE CAPM UTILITY, SH beta bond c DGM uture INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR cleanYIELD bond cap stru WACC RESI ex di rences: CF135 05:05 11-01-2019Home nert Page Layout Formulas Data Review View dd-Ins s Cut aCopy E AutoSum Wrap Text в 1 프· ー· 鱼, Δ. :r-ㄧ 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Formsat Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard Alignment Number Cells GZ49 GR GS GT GU GV GW GX GY GZ НА HB 32 KUHN PART 2 WACC (NEW COMMON EQUITY) 34 KUHN BOND (kd) 35 PARTI FV 36 37 38 39 40 ANS Kd (AFTER TAX 1000 1050.76 10% ВС PV COUPON LIFE kd (BEFORE TAX) SOURCE COMMON EQUITY DEBT PREFERRED STOCK WEIGHT COC (%) 63% 35% 2% 100% 22.023% 5.223% 8.672% WEIGHTED COST 13.875% 1.828% 0.173% 8.70% excel-RATE(5,-100, 1050.76,-1000) 8.70%( 1-0.4)- 5.223% 42 ANS kp D/Po 8/92.25- 43 8.672% 15.88% ke D1/(PO(1-f) g D1-2.78.8-9.296, f-3%, P0-22.35 45 46 47 48 ANS ke 2.78/(22.35(0.97))+0.092- 49 50 /4 | KE CAPM , UTILITY, SH ke 2.78/(22.35(1-0.03)0.092 ANSWER IS: 15.88% 22.023% beta bond c future INDEX INTL CAP BUDLEASING PV, FV, ANNUITYDIR cleanYIELD bond cap stru WACC RESI ex di 130% rences: CF135 05:08 11-01-2019

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