Wally’s plans to finance the project with 25% debt, 15% preferred stock, 35% retained earnings, and...
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.
Homework Answers
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.
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