Excel Activity: Calculating the WACC Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): Skye's earnings per share last year were $2.40. The common stock sells for $60.00, last year's dividend ( D0) was $1.70; and a flotation cost of 9% stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8%. Skye's preferred stock pays a dividend of $2.50 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 8%, and its marginal tax rate is 25%. The firm's currently outstanding 8% annual coupon rate, long-term debt sells at par value. The market risk premium is 4%, the risk-free rate is 5%, and Skye's beta is 1.326 . The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1 million. The data has been collected In the Microsoft Excel flle below. Doveload the spreadsheet and perform the required analysis to answer the questlons below. Do not round Intermedlate calculations. Round your answers to twio decimal places. Dowiload spreadsheet Calculating the WACC-8de79e. xlsx 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. After-tax cost of debt: % Cost of preferred stock: % Cost of retained earnings: % b. Now calculate the cost of common equity from retained earnings, using the CAPM method. 0/0 for rs ) 0/0 values obtained under the two methods in calculating WACC.) WACC1: WACC2: Excel Activity: Calculating the WACC Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): Skye's earnings per share last year were $2.40. The common stock sells for $60.00, last year's dividend ( D0) was $1.70; and a flotation cost of 9% stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8%. Skye's preferred stock pays a dividend of $2.50 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 8%, and its marginal tax rate is 25%. The firm's currently outstanding 8% annual coupon rate, long-term debt sells at par value. The market risk premium is 4%, the risk-free rate is 5%, and Skye's beta is 1.326 . The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1 million. The data has been collected In the Microsoft Excel flle below. Doveload the spreadsheet and perform the required analysis to answer the questlons below. Do not round Intermedlate calculations. Round your answers to twio decimal places. Dowiload spreadsheet Calculating the WACC-8de79e. xlsx 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. After-tax cost of debt: % Cost of preferred stock: % Cost of retained earnings: % b. Now calculate the cost of common equity from retained earnings, using the CAPM method. 0/0 for rs ) 0/0 values obtained under the two methods in calculating WACC.) WACC1: WACC2
