A firm is raising capital for a new project. Their oustanding bonds pay 14% interest annually. Investors currently pay $1124 for the 10-year bond. This firm plans to issue common stock. The additional risk permium on the firm's stock is 2.3%. Estimate the cost of equity capital?

Solve for the cost of equity

		6.51%
		4.21%
		4.99%
		None of the other choices
		2.69%

Calculating Cost of Equity Again

Wandering Oaken's Trading Post's common stock has a beta of 2.84. If the risk free rate of return is expected to be 3.93% and the market risk premium is 6.55%, what is the cost of equity for Wandering Oaken's common stock? answers should be entered as percentages s0 10.04% should be entered as 10.04.

A firm is considering a new project that will require an initial outlay of $20 million. It has a target capital structure of 50% debt, 8% preferred stock, and 42% common equity. The firm has non-callable bonds that mature in five years with a face value of $1,000, an annual coupon rate of 8%, and a market price of $1080.64. The yield on the companys current bonds is a good approximation of the yield on any new bonds that are issued. The cost of preferred stock for the firm is 12.5% and the cost of common equity is 14%. The firm has a marginal tax rate of 35%. Determine the firms WACC for this project"

Step 1. Find the cost of debt (the yield to maturity on outstanding bonds)

Step 2. Input all of the necessary variables into the WACC equation

		8.86%
		9.92%
		8.00
		10.83%