Consider the case of Purple Lemon Shipbuilders

The CFO of Purple Lemon Shipbuilders is trying to determine the companys WACC. He has determined that the companys before-tax cost of debt is 8.70%. The company currently has $100,000 of debt, and the CFO believes that the book value of the companys debt is a good approximation for the market value of the companys debt.

	The firms cost of preferred stock is 9.90%, and the book value of preferred stock is $10,500.
	Its cost of equity is 13.20%, and the company currently has $85,000 of common equity on its balance sheet.
	The CFO has estimated that the firms market value of preferred stock is $30,000, and the market value of its common equity is $140,000.

If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Shipbuilderss WACC is9.88% . (Note: Round your answer to two decimal places.)

Consider the case of Red Snail Satellite Company

Red Snail Satellite Company is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Red Snail Satellite has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yield on the companys current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Red Snail Satellite new preferred shares can be sold without incurring flotation costs.

Red Snail Satellite does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $22.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40%.

Red Snail Satellites WACC for this project will be: (Note: Round your answer to two decimal places.)

15.63%

17.97%

17.19%

18.76%