Calculate:

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1. Cost of equity using dividend discount model:

2. Cost of preferred stock:

3. Cost of debt. Include both sources of debt.

4. The weight of each component (% of each).

5. WACC calculation.

6. Briefly discuss the difference in your calculation and the bosses calculation. Where did he go wrong?

for ,1t2/(1 .085)s = $3,149.7 thousand. Adding in the gives a present value for the business of $3,344.9 luusand. years 1 to 5 MINICASE at Sea Shore Salt. for a agreed. When she returned with an honors degree, cost of capital to other managers. The memo came as a surprise to Bernice, so she stayed late to prepare for the questions that would ees were treated well. When she had asked a year ago Employ ehsence to complete her degree in finance, top manage- surely come the next day. ment promptly Bernice firste xamined Sea Shore Salt's most recent balance nromoted from administrative assistant (she had been sec- sheet, summarized in Table 13.6. Then she jotted down the follow to Joe-Bob Brinepool, the president) to treasury analyst. ing additional points: Bernice thought the company's prospects were good. Sure, a mature business, but Sea Shore Salt had grown The company's bank chargcd interest at current m scadily at the expense of its less well known competitors. The and the company's brand name was an important advantage, despite the values could not differ by much. difficulty most customers had in pronouncing it rapidly. and the long-term debt had just been issued. Book and market .But the preferred stock had been issued 35 years ago, when Bernice started work on January 2, 2016. The first 2 weeks went interest rates were much lower. The preferred stock, originally smoothly. Then Mr. Brinepool's cost of capital memo (see Figure 13.2) assigned her to explain Sea Shore Salt's weighted-average issued at a book value of $100 per share, was now trading for only $70 per share