Question

calculate the Wacc which represses the

Show your work with the data below. (40 points) Calculate the WACC which represents the hurdle rate for a typical project with averagerisk using the average ratc of therange ofthe marginal cost of common equity using retained carnings or new earnings. 1. Data: A 15-year, 12% coupon, semiannual payment non-callable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost A 10%, $1,000 par value, annually dividend, perpetual preferred stock sells for $1,111. Both an existing common stock an 10% of the proceeds, sells for $50. D = $4.3995 and g= 5%. B 1.2; r Bond-Yield Risk Premium = 4%. Target capital structure: 20% debt, 20% preferred, 60% common equity. Tax rate is 40%. a new common stock issue, which incurs a flotation cost of 6% = 7%; RP RF

Answer 1

E2 : X for =D2*B2 A B Component Cost 13.80% =4.3995/50+5% Market value $ 60 Weights 0.6000 WACC (Cost %*Weights) 8.28% 2 Common stock 3 5 Preferred stock $ 20 0.2000 1.80% 9.00% =100/1111 8 Debt 20 0.2000 1.20% 6.00% $ =RATE(15*2,120/2.-1153.72,1000)*2*(1-40% Total 100 1.0000 Weighted average cost of capital 11.28%

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