Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

all of the necessary data is in the question to complete the problem. anything incomplete is what i am requesting help completing Excel Activity: WACC

image text in transcribed
image text in transcribed
image text in transcribed
all of the necessary data is in the question to complete the problem. anything incomplete is what i am requesting help completing
Excel Activity: WACC Start with the partial model in the file Ch11 P18 Build a Model. x/sx. The stock of Gao Computing sells for $50, and last year's dividend was $2.59. Security analysts are projecting that the common dividend will grow at a rate of 6% a year. A flotation cost of 12% would be required to issue new common stock. Gao's preferred stock sells for $43.48, pays a dividend of $4.00 per share, and new preferred stock could be sold with a flotation cost of 8%. The firm has outstanding bonds with 25 years to maturity, a 10% annual coupon rate, semiannual payments, and $1,000 par value. The bonds are trading at $1,214.82. The tax rate is 25%. The market risk premium is 5%, the risk-free rate is 5.5%, and Gao's beta is 1.2 . In its cost-of-capital calculations, Gao uses a target capital structure with 45% debt, 15% preferred stock, and 40% common equity. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Round your answers to two decimal places. a. Calculate the cost of each capital component-in other words, the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the cost of equity (ignoring flotation costs). Use both the CAPM method and the dividend growth approach to find the cost of equity. b. Calculate the cost of new stock using the dividend growth approach. % c. Assuming that Gao will not issue new equity and will continue to use the same target capital structure, what is the company's WACC? % C24 1 WACC c. Calculating the company's WACC if Gao will not issue new equity and will continue to use the same target capital structure WACC

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Meta Verse Complete Beginners Guide To Digital Asset

Authors: Koala Publishers ,Charles Murphy

1st Edition

979-8830770743

More Books

Students also viewed these Finance questions