Question
6a. You were hired as a consultant to ILOVECORPFINANCE company and were provided with the following data: The target capital structure is 40% debt, 10%
6a. You were hired as a consultant to ILOVECORPFINANCE company and were provided with the following data: The target capital structure is 40% debt, 10% preferred stock, and 50% common equity. The interest rate on new debt is 8.00%, the yield on preferred stock is 7.00%, and cost of retained earning is 12.00%. What is the firms WACC?
6b. The company in 6a is considering changing its capital structure due to improved financial conditions, where the interest on new debt drops to 7.00%, the yield on preferred stock drops to 6.5%, and cost of retained earnings drops to 10%. The company would like to focus on the drop in retained earnings and suggests the following structure: 40% debt, 15% preferred stock, and 55% common equity. Advise the company on its new proposal. Is it sound and preferable to 6a?
show your work, please and I need the answer for 6B only
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