Question
Consider a company that has debt of 85 million in bonds (PV of the bonds has already been calculated), 45 million market value of preferred
Consider a company that has debt of 85 million in bonds (PV of the bonds has already been calculated), 45 million market value of preferred stock, and 170 million market value of common stock. The required rates of return for bonds, preferred stock, and common stock are 4%, 8%, and 15%, respectively. The tax rate of the company is 21%. (5 points)
- Compute the companys WACC.
- What does this value represent?
- Assume the company takes on new debt to fund a project a project that is functionally identical in risk to current operations. How will this affect the WACC of the company?
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Personal Finance
Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes, Arshad Ahmad, Jordan Fortino
7th Canadian Edition
1259650650, 978-1259650659
