A firm's weighted averoge cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting profects. Honevec, remernber the WACC is an appropriate discount rate only for a project of average risk. Anayze the cost of capital situations of the following company coses, and answer the specific questions that finance professionals need to oddreis. The case of cute Camel Woodicraft Company Cuto Camel Woodcraft Company has a terjet capital structure of 45% debt, 45 preferred stock, and 51% common equity, it has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Cute Camel can ralse all of its equity capitat from retained earnings, 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%. If its current tax rate is 40%, how much higher will cute Camel's weighted average cost of capltal (wACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained eamings? (Note: Round your answer to two decimal plactes.) 1.39% 1.20% 1.07s 1.345 The case of Purple Lemon Shipbuilders The CFO of Murple Lemon Shipbulloers is trying to determine the companys WACC. Me has determined that the company's before-tax cost of debt is 8.70\%. The company currently has $100,000 of debt, and the cro believes that the book value of the companrs debt is a good approximation for the market value of the company's debt. 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 cost of debt is 8.70%, The company currentiy has $100,000 of debt; and the CFo believes that the book value of the company's debt is a good approximation for the: market value of the company's debt. - The firm's cost of preferred stock is 9.90%, and the book value of preferred stock is $10,500. - Its cost of equity is 13.20%, and the company currently has $85,000 of commen equity on its balance sheet. - The CFO has estimated that the firm's market value of preferred stock is $30,000, and the market value of its common equity is $140,000. If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbullders's WACC is (Hint: Round your answer to two decimal places.) The case of Red Snall Satellite Company Red Snatr Satattite Company is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 354 . debt, 2% preferred stock, and 63% cornmon equity. Red Snail Satelite has noncaliable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,$55.38. The vield on the company's current bonds is a good approximation of the yleld on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Red Snail Satellite new preferred shares can be sold without incurring flotation costs. Red Snall Satelite does not have any retained earnings avallable to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Fiotation costs will represent 3% of the funds ralsed by issuing new common stock. The company is projected to grow at a constant rate of 8.74 , and they face a tax: rate of 40%. Red Snail Satellite's WACC for this project wili be: (Hint: Round your answer to two decimal places.) 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 cost of debt is 8.70%, The company currentiy has $100,000 of debt; and the CFo believes that the book value of the company's debt is a good approximation for the: market value of the company's debt. - The firm's cost of preferred stock is 9.90%, and the book value of preferred stock is $10,500. - Its cost of equity is 13.20%, and the company currently has $85,000 of commen equity on its balance sheet. - The CFO has estimated that the firm's market value of preferred stock is $30,000, and the market value of its common equity is $140,000. If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbullders's WACC is (Hint: Round your answer to two decimal places.) The case of Red Snall Satellite Company Red Snatr Satattite Company is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 354 . debt, 2% preferred stock, and 63% cornmon equity. Red Snail Satelite has noncaliable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,$55.38. The vield on the company's current bonds is a good approximation of the yleld on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Red Snail Satellite new preferred shares can be sold without incurring flotation costs. Red Snall Satelite does not have any retained earnings avallable to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Fiotation costs will represent 3% of the funds ralsed by issuing new common stock. The company is projected to grow at a constant rate of 8.74 , and they face a tax: rate of 40%. Red Snail Satellite's WACC for this project wili be: (Hint: Round your answer to two decimal places.) If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbuliders's WACC is places.) (Hint: Round your answer to two decimal The case of Red Snail Satellite Company Red Snail Satelite Company is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Red Snail Satelite has noncallable bonds outstanding that mature in is years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yleld on the company's current bonds is a good approximation of the yieid on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Red Snall Satelite new preferred shares can be sold without incurring flotation costs. Red Snail Satelite does not have any retained eamings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently 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 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tox rate of 40%. Red Snail Satellite's WACC for this project will be: (Hint: Round your answer to two decimal places.) 10.87% 9.45% 11.345 10.40% A firm's weighted averoge cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting profects. Honevec, remernber the WACC is an appropriate discount rate only for a project of average risk. Anayze the cost of capital situations of the following company coses, and answer the specific questions that finance professionals need to oddreis. The case of cute Camel Woodicraft Company Cuto Camel Woodcraft Company has a terjet capital structure of 45% debt, 45 preferred stock, and 51% common equity, it has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Cute Camel can ralse all of its equity capitat from retained earnings, 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%. If its current tax rate is 40%, how much higher will cute Camel's weighted average cost of capltal (wACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained eamings? (Note: Round your answer to two decimal plactes.) 1.39% 1.20% 1.07s 1.345 The case of Purple Lemon Shipbuilders The CFO of Murple Lemon Shipbulloers is trying to determine the companys WACC. Me has determined that the company's before-tax cost of debt is 8.70\%. The company currently has $100,000 of debt, and the cro believes that the book value of the companrs debt is a good approximation for the market value of the company's debt. 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 cost of debt is 8.70%, The company currentiy has $100,000 of debt; and the CFo believes that the book value of the company's debt is a good approximation for the: market value of the company's debt. - The firm's cost of preferred stock is 9.90%, and the book value of preferred stock is $10,500. - Its cost of equity is 13.20%, and the company currently has $85,000 of commen equity on its balance sheet. - The CFO has estimated that the firm's market value of preferred stock is $30,000, and the market value of its common equity is $140,000. If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbullders's WACC is (Hint: Round your answer to two decimal places.) The case of Red Snall Satellite Company Red Snatr Satattite Company is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 354 . debt, 2% preferred stock, and 63% cornmon equity. Red Snail Satelite has noncaliable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,$55.38. The vield on the company's current bonds is a good approximation of the yleld on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Red Snail Satellite new preferred shares can be sold without incurring flotation costs. Red Snall Satelite does not have any retained earnings avallable to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Fiotation costs will represent 3% of the funds ralsed by issuing new common stock. The company is projected to grow at a constant rate of 8.74 , and they face a tax: rate of 40%. Red Snail Satellite's WACC for this project wili be: (Hint: Round your answer to two decimal places.) 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 cost of debt is 8.70%, The company currentiy has $100,000 of debt; and the CFo believes that the book value of the company's debt is a good approximation for the: market value of the company's debt. - The firm's cost of preferred stock is 9.90%, and the book value of preferred stock is $10,500. - Its cost of equity is 13.20%, and the company currently has $85,000 of commen equity on its balance sheet. - The CFO has estimated that the firm's market value of preferred stock is $30,000, and the market value of its common equity is $140,000. If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbullders's WACC is (Hint: Round your answer to two decimal places.) The case of Red Snall Satellite Company Red Snatr Satattite Company is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 354 . debt, 2% preferred stock, and 63% cornmon equity. Red Snail Satelite has noncaliable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,$55.38. The vield on the company's current bonds is a good approximation of the yleld on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Red Snail Satellite new preferred shares can be sold without incurring flotation costs. Red Snall Satelite does not have any retained earnings avallable to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Fiotation costs will represent 3% of the funds ralsed by issuing new common stock. The company is projected to grow at a constant rate of 8.74 , and they face a tax: rate of 40%. Red Snail Satellite's WACC for this project wili be: (Hint: Round your answer to two decimal places.) If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbuliders's WACC is places.) (Hint: Round your answer to two decimal The case of Red Snail Satellite Company Red Snail Satelite Company is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Red Snail Satelite has noncallable bonds outstanding that mature in is years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yleld on the company's current bonds is a good approximation of the yieid on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Red Snall Satelite new preferred shares can be sold without incurring flotation costs. Red Snail Satelite does not have any retained eamings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently 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 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tox rate of 40%. Red Snail Satellite's WACC for this project will be: (Hint: Round your answer to two decimal places.) 10.87% 9.45% 11.345 10.40%