1)
Retained earnings:
WACC = Weights * costs
WACC = 0.4*0.09*(1 - 0.25) + 0.05*0.082 + 0.55*0.116
WACC = 0.027 + 0.0041 + 0.0638
WACC = 0.0949 or 9.49%
2)
New common stock:
WACC = Weights * costs
WACC = 0.4*0.09*(1 - 0.25) + 0.05*0.082 + 0.55*0.122
WACC = 0.027 + 0.0041 + 0.0671
WACC = 0.0982 or 9.82%
Back to Assignment Keep the Highest: 0/2 Attempts: 0 5. 6: The Cost of Capital: Weighted...
Attempts: 0 Keep the Highest: 0/2 5. 6: The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new...
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< Back to Assignment Attempts: 0 Keep the Highest: 0/2 5. 6: The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not...
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