A firm's weighbed 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 Cute Camel Woodcraft Company Cute Camel Woodcraft Company has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If its current tax rate is 40%, how uch higher will Cute Camal's 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 Cute Camel can raise all of its equity capital from retained eamings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. 0.77% 0 0.83% 0.70% 0.54% Consider the case of Purple Lemon Shipbuilders The CFO of Purple Lemon Shipbuilders 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 $100,000 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 $10,500. Its oost of equity is 13.50%, and the company currently has $85,000 ofcommon equity on its balance sheet. The CFO has estimated that the firm's market value of preferred stock is $3D,0DD, and the market value of its common equity is $140,000 . If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbuilders's WACC is 8.77% 7.23% 11.87%