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5. plz help me answer both parts. The firm's target capital structure is the mix of debt, preferred stack, and common equity the firm plats
5. plz help me answer both parts.
The firm's target capital structure is the mix of debt, preferred stack, and common equity the firm plats to ratse funds, for its future projects. The target-proportions of fabt, preferred stock; and comenon equity, along with the cost of these components, are used to calculate the fiming weighted ayernge cost of capitai (Wiacc). If the firm will not have to issue hew common stock, then the cost of retained earnings is used in the firm's wacc colculation. Hilowever, if the firm will have to is isue new common stock, the cost of new common stock should be used in the firm's WACC calculation. Quantitative Problem: Barton Industres expects that its target capatal structure for raising funds in the future for its capital budget will consest of 409 sebt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 25%. Assume that the firm's cost of debt, re is 9.0%, the firm's cost of preferted stock, rp. is 8.2% and the firm's cost of equity is 11.6% for old cquity, ts, and 12.19 for new equity, fe. What is the firm's weighted averege cost of capital (WACCi) if it uses retained earnings as its source of common equity? Do not round intermediate colculations: Round your answer to two decimat places. What is the firm's weighted average coct of capital (WACC2) if it has to issue new common stock? Do not round intrimediate calculations. Round your arswer to two decifial places Step by Step Solution
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