8. Solving for a firm's WACC A firm's weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, remember 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 Blue Hamster Manufacturing Blue Hamsber Manufacturing has a target capital st cture of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its oost of preferred stock is 12.2%. If its current tax rate is 40%, how uch higher will Blue Hamsters weighbed 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 eamings? If Blue Hamster can raise all of its equity capitall from retained eamings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. 0 0.83% 0 0.90% o 0.64% 0 0.75% Consider the case of Cold Duck Brewing Company The CFO of Cold Duck Brewing Company is trying to determine the company's WACC. He has determined that the company's before-tax oost of debt is 9.60%. The company currently has $750,000 of debt, and the CFO believes that the book value of the company's debtis a goad approximation for the market value of the company's debt The firm's cost of preferred stock is 10.70%, and the book value of preferred stock is $45,000 Its oost of equity is 13.50%, and the company currently has $500,000 of common equity on its balance sheet The CFO has estimated that the firm's market value of preferred stock is $78,0DD, and the market value of its common equity is $88D,000. . If Cold Duck is subject to a tax rate of 40%, Cold Duck Brewing Company's WACC is