Assignment 2 - Chapter 11: Determining the Cost of Capital 8. Solving for a firm's WACC A firm's weighted 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 address. Consider the case of Green Caterpillar Garden Supplies Green Caterpillar Garden Supplies has a target capital structure of 58% debt, 6% preferred stock, and 36% common equily. It has a be tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Green Caterpillar can raise all of its equity capital 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 Green Caterpillar's weighted average cost of capital (WACC) be if it has to raise add common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your answer decimal places.) 0.90% 0.86% N 0.75% 0.68%