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. debt.4% txos Turnbull Co. has a target capital structure of 45 its cost of preferred stockis 12.24. If Turnbull can raise all of its equity capital from retained earnings.com common equity, it will carry a cost of 16.8%. owever, it is necessary to raise nem chun to rose stations comment contents of its current tax rate is 40%, how much higher wil Turnbul's weighted average cosa ... meteaded in the funds through retained earnings? (Note: Round your intermediate calculations to two Ch 10: Assignment - The Cost of Capital its cost of preferred stock is 12.25 it is sy to renew If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. Ho common equity, it will carry a cost of 16.8% If its current tax rate is 40%, 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.) 0.91% 0.96% 1.34% 1.07 Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,700,000 in capital by issuing $750,000 of debt at a before-tax cost of 8.790, $78,000 of preferred stock at a cost of 9.9%, and $880,000 of equity at a cost of 13.2%. The form faces a tax rate of 40%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.) Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,708,000 in capital by issuing $750,000 of debt at a before-tax cost of 8.7%, $78,000 of preferred stock at a cost of 9.9%, and $380,000 of equity at a cost of 13.2%. The firm faces a tax rate of 40%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.) 10.490 Consider the case of Kuhn Co. 9.54% Kuhn Co. is considering a new project that will require an initial i 7.15% f $45 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Kuhn has noncallable bonds out at mature in five years with a face value of $1,000, an annual coupon rate 6.68% of 10%, and a market price of $1,050.76. The yield on the compe t bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 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 selling for $33.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tax rate of 40%. What will be the WACC for this project? (Note: Round your intermediate calculations to two decimal places.)
