Wally’s plans to finance the project with 25% debt, 15% preferred stock, 35% retained earnings, and 25% newly issued equity. The company’s cost of debt for six years is 3%, while the cost of preferred stock is estimated to be 8%. The company’s cost of equity (retained earnings) is estimated to be 12%. Flotation costs for any new equity issued would be 10%. Calculate the WACC for the project. Round the percentage to two decimal places.
Hello,
WACC = Wd* Kd +Wd*Kp + Wd*Kr + Wd*Ke
WACC =0.25*3 + .15*8 + .35*12 + .25 * 13.2
WACC = 9.45%
Cost of equity = 12 % + (10% of 12)
Kr = Cost of retained earnings
I hope this clear your doubt.
Feel free to comment if you still have any query or need something else. I'll help asap.
Do give a thumbs up if you find this helpful.
Wally’s plans to finance the project with 25% debt, 15% preferred stock, 35% retained earnings, and...
show work please! Kuhn Co. has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. The tax rate is 40% The yield to maturity on the new bonds is 8.7%. Its cost of preferred stock is 8.67% and its cost of retained earnings is 20%. • If the firm have to issue new common stock, its common stock is currently selling for $22.35 per share, and it just paid a dividend of $2.55. Floatation costs...
Given the following information: Percent of capital structure Preferred stock Common equity (retained earnings) Debt 25% 35 40 eBook Additional information: Corporate tax rate Dividend, preferred Dividend, expected common Price, preferred Growth rate 30% 12.00 $ 7.50 $95.00 10% 12% Bond yield Flotation cost, preferred Price, common $ 8.50 80.00 Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt...
Given the following information: Percent of capital structure: Debt Preferred stock Common equity (retained earnings) 35 20 45 Additional information: Bond coupon rate Bond yield to maturity Dividend, expected common Dividend, preferred Price, common Price, preferred Flotation cost, preferred Growth rate Corporate tax rate 91 s 5.00 S 12.00 s 60.00 $106.00 S 4.50 61 25t Calculate the Hamilton Corp's weighted cost of each source intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) of capital...
Given the following information: Percent of capital structure: 25% Preferred stock Common equity (retained earnings) Debt 30 45 Additional information: 34% $ 6.00 $ 3.50 $ 96.00 Corporate tax rate Dividend, preferred Dividend, expected common Price, preferred Growth rate Bond yield Flotation cost, preferred Price, common 4% $10.20 $81.00 Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt Preferred...
Given the following information: Percent of capital structure: Debt 15% Preferred stock Common equity (retained earnings) 10 75 Additional information: Bond coupon rate Bond yield to maturity Dividend, expected common Dividend, preferred Price, common Price, preferred Flotation cost, preferred Growth rate Corporate tax rate 5% 4% $ 2.00 $ 9.00 $ 45.00 $130.00 %$4 2.20 7% 35% Calculate the Hamilton Corp's weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations....
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 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%. A) If its current tax rate is 40%, how...
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 company’s current bonds is a good approximation of the yield on any new bonds that it...
Given the following information: Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate Dividend, preferred Dividend, expected common Price, preferred Growth rate Bond yield Flotation cost, preferred Price, common 35% $ 10.00 $ 5.5e $106.ee 103 $ 6.50 $89.00 Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt Preferred stock Common equity...
Given the following information: Percent of capital structure: Preferred stock 35 % Common equity (retained earnings) 45 Debt 20 Additional information: Corporate tax rate 30 % Dividend, preferred $ 8.00 Dividend, expected common $ 3.50 Price, preferred $ 110.00 Growth rate 6 % Bond yield 6 % Flotation cost, preferred $ 4.50 Price, common $ 85.00 Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to...
Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2% 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%. If its current tax rate is 25%, how much...