Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of the following factors are outside a firm's control? Check all that apply. Interest rates in the economy The performance of index funds, such as the S&P 500 The firm's capital structure The impact of cost of capital on managerial decisions Consider the following case: Lancashire Railway Company (LRC) has two divisions, Land H. Division L is the company's low-risk division and would have a weighted average cost of capital of 8% if it was operated as an independent company. Division H is the company's high-risk division and would have a weighted average cost of capital of 14% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 11%. Division His considering a project with an expected return of 12%. Should Lancashire Railway Company (LRC) accept or reject the project? O Reject the project Accept the project On wat grounds do you base your accept-reject decision? Didion H's project should be rejected since its return is less than then bared cost of capital for the dislon son project should be accepted as its retur greater than the based cons of capital for the salon DU JUxumlPaeploymentid=593314153485036874942581478 The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Turnbull Co. Tumbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. If its current tax rate is 25%, how much higher will Tumbull's weighted average cost of capital (WACC) be if it has to raise additionat common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to be decimal places) 0.654 0.7695 O 1.034 0.68% Turnbull Co. is considering a project that requires an initial investment of $1.708,000. The firm will raise the $1.708,000 in capital by issuing 5750.000 of debt at a before-tax cost of 8.79 $78.000 of preferred to a cost of, and $80,000 of equity at a cost of 13 24. The firm Faces a tax rate of 2545. What will be the WACC for this project? (Note Round you intermediate calculations to three decima places Consider the case of Kuhn Co. on 1 tase contacture of 535 debt. preferred 1.03% O 0.65% Turnbull Co. is considering a project that requires an initial investment of $1.708.000. The firm will raise the $1,708,000 in capital by issuing 3750,000 of debt at a before-tax cost of 8.7%, $70,000 of preferred stock at a cost of 5.9%. and $880,000 of equity at a cost of 13.2%. The firm faces a tax rate of 25%. What will be the WACC for this project? (Notet Round your intermediate calculations to three decimal places.) Consider the case of Kuhn Co. Kuhn Co. is considering a new project that will require an initial investment of $20 million. It has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. Kuhn 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 $155.38. The yield on the company's current bonds is a good approximation of the yield on any new bands that it issues. The company can sell shares of preferred stock that pay an annual dividend of $9 at a price of $95.70 per share. Kuhn 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 $1.36 at the end of next year. Flotation costs will represent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%. and they face a tax rate of 25%. What will be the WACC for this project? (Note: Round your intermediate calculations to two decimal places.) Grade It Now Save & Continue Continue without saving