Ch 10-21

Calculate the WACC

Here is the condensed 2015 balance sheet for skype computer company ( in thousands of dollars)

Current assets $2000

Net Fixed assets $3000

Total Assets $5000

Accounts payable and accruals $900

Short-term debt $100

Long term debt $1,100

Preferred stock( 10,000 shares) $ 250

Common Stock ( 50,000 Shares) $ 1,300

Retained earnings $ 1,350

Total common equity $ 2650

Total liabilities and Equity $ 5,000

Skye's earnings per share last year were $3.20. The common stock sells for $55, last years dividend was $2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysis are projecting that the common dividend will grow at an annual rate of 9%. Skye's preferred stocks pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share. The firms before tax cost of the debt is 10% and its marginal tax rate is 35%. The firms currenlty outstanding 10% annual coupon rate, long term debt sells at par value. The market risk premium is 5%, the risk free rate is 6% and skye's beta is 1.516. The firms total debt, which is the sum of the company's short term debt and long term debt, equals $1.2 million.

A) Calculate the cost of each capital component, that is, the after tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity.

B) Calculate the cost of common equity from retained earnings, using the CAMP method.

C) What is the cost of new common stock based on the CAMP?

Please answer all steps clear and in excel. Thank you