6. Solving for the WACC The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the wacC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Turnbull Co. Tumbull Co. has a target capital structure of 58% debt, 6% prefgred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%6, and its cost of preferred stock is 9.3% If Tumbull can raise all of its equity capital from retained earnings, its cost of commen equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a covt of 14.2%. If its current tax rate is 25\%, how much higher will Turnbulis weighted average cost of capital (Wacc) be if it has to rase addtional common equity capital by issuing new common stock instead of railing the funds through retained eamings? (Note: Round your intermediate calculabions to two decimal places.) Tumbuil C. is considering a project that requires an inatial investment of 5570,000 . The firm will raise the $570,000 in capital by issuing 3230,000 of debt at a before-tax cost of 3.7%,$20,000 of preferred stock at a cost of 9.946 , and $320,000 of equity at a cort of 13.245 , The firm faces a tax rate of 25%. What wis be the wacc for this project? (Note: Round your intermediate calculations to three decimal places) If its current tax rate is 25%, how much higher will Turnbull's weighted average cost of capital (WAcC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places.) 0.78% 0.85% 0.72% 0.65% Turnbull Co. is consldering a project that requres an initial invessment of $570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 8.7%,$20,000 of preferred stock at a cost of 9.9%, and $320,000 of equity at a cost of 13.2%. The firm faces a tax rate of 25%. What will be the WAcC for this project? (Note: Round your intermediate calculations to three decimal places.) Consider the case of Kuhn Co. Kuhn Co. is considering a new project that will require an initial investment of $45 milion, it has a target capital structure of 45% debt, 4% preferred stock, and 51% 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 issues. The company can seil shares of preferred stock that pay an annual dividend of $9 at a price of $92.25 per share. Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently seling for $22.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year Flotation costs will represent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.736 , and they face a tax rate of 2s\%. What will be the Whcc for this project? (Note: Round your intermediate calculations to two decimal places.)