as Ch 10: Assignment - The Cost of Capital 6. Solving for the WACC The WACC is used as the discount rate to evaate various capital budgeting projects. However, it is important to realize that 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 Turnbull Co. preferred stock, and 519 common equity. It has a before tax cost of det of 11.1%, and Turnbull has a target capital structure of 45% detit, its cost of preferred stock is 12.29. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessiwy to raise new common equity, it will carry a cost of 16.8% If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of racing the funds through retained carings? (Note: Round your intermediate calculations to two Ch 10: Assignment - The Cost of Capital If its current tax rate is 40%, how much gher will Turnbull's weighted average cost of capital (WACC) be if hes to raise additional common equity capital by issuing new common stock instead of ratsang the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places) 0.914 0.96 1.34% 1.07% Turnbull is considering o ject that requires an in n ement of $1.200 000. The firm will the $10.000 in capital by issuing $750,000 of dettata before-tax cost of 8 ,578,000 of preferred stock at a cost of 9.1 and 500,000 of quity a cost of 13.24. The firm faces a tax rate of 40%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.) 10. Consider the case of Kut Co. Kuhn Co. is considering a new project that will require an initial 2.154 dett, 2 45 million. It has a target capital structure of 35 ww with a focale1000 preferred Donate Ch 10: Assignment - The Cost of Capital 01.07 Tur Co. is considering a project that requires an initial investment of $1,700,000. The firm will raise the $1,700,000 in capital by issuing $750,000 of debt at a before tax cost of 8.7%, $75,000 of preferred stock at a cost of 9.9% 880,000 of equity at a cost of 13.2%. The form faces a tax rate of 40%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.) Consider the case of Kuhin Co. Kuhn C. is considering a new project that will require an initial investment of 545 million. It has a target capital structure of debt, 2% preferred stock, and 6.99 O n t y Kuhn has noncallable hands outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10%, and a market price of $1,050.76. The yield 's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stoc En annual dividend of $8 at a price of $95.70 per share. 1120 15.16 Kuhn does not have any retained earings available common stock is currently selling for $33.35 per shar represent 8% of the funds raised by issuing new com rate of 40%. What will be the WACC for this project 11.86% project, so the firm wil luve to new common stock to help fund it. Its expected to pay a dividend of $2.78 at the end of next year. Flotation costs will The company projected to grow at a constant rate of and they face a tax (Note: Round your intermediate calculations to two decimal places)
