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Assume that a company target debt-to-equity ratio of 2. The company currently pays 8% annually on its bonds. There are 10 years until maturity, and
- Assume that a company target debt-to-equity ratio of 2. The company currently pays 8% annually on its bonds. There are 10 years until maturity, and the bonds currently trade at 93% pf par. If the company where to issue new debt (at par value of $1000), the bonds coupon rate would be the same as the required rate of return on its current debt in the market and the new bond issue flotation cost would be 3%. The companys beta is 1.5, the RPm = 4% and rf =5%. The companys tax rate = 30%.
- Calculate the WACC.
- Assume that the company changed its target capital structure to 47% long-term debt, 20% preferred stock, and 33% common stock. If preferred shares are issued at $25, pay a dividend of 7%, and have flotation costs of 5%, recalculate the companys WACC.
Please solve without excel
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