6. Solving for the WACC The WACC is used as the discount rate to evaluate various capitai budgeting projects. Howeve, it is importart to reatize that the wACC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital stuations of the following company cases, and answer the specific questions that finance professionals netd to sddress Consider the case of Turnbull co. Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity, it has a before-tax cost of debt of 8.24 , and its cost of preferred stock is 9.3%. If Turnoutt can raise alf of its equity capital from retained earnings, its cost of common equity will be 12.4 W. However, if it is necessary to isise new common squily, it will carry a cost of 14.2W. If as current tax rate is 25%, how much higher wall Turnbulis neighed average cost of capital (WACC) be if it has to raise addetional common equity capital by issuing new common stock instead of rasing the funds through retained eamings? (Note: Round your irtermediate calculations to the decimal places.) 0.65% 0.75% 0.78% If its current tax rate is 25%, how much higher will Turnbuli's weighted average cost of capital (WACC) be if it has to raise additional coenmon equity capital by issuing new common stock instead of rasing the funds through retained earnings? (Note: found your intermediate calcifations to thrs deciral pleces.) 0.65% 0.75% 0.78% 0.51% Turnbull Co, is considering a project that requires an incial 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 10.2%,578,000 of preferred stock at a cost of 11.4%, and $880,000 of equity at a cost of 14.3%. The firm faces a tax. rote of 25%. What will be the wacc for this project? (Note: Round your intermediate calculations to three decimal places.) Consider the case of Kunn Co. stock, and 51% commen equity. Kubn has noncaliable bonds outstanding that mature in 15 years with o tace value of $1,000, an ancual coupon rate of 11%, and a market price of $1555,38, The vidid on the company's current bonds is a 90od 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 $9 at a price of $92.25 per share. Kuhn does not have any retained earnings available to finance this project, so the firm wilt have to issue new common stock to help fund it. Its common stock is currentiy selling for $33.35 per share, and it is expected to pay a dividend of $1,36 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 9.2%, and they face 3 tax rate of 25%. What will be the wacc for this project? (Note: Round your intermediate calculations to two decimal places.)
