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EXCEL MI Inc. expects that its target capital structure for raising funds in the future for its capital budget will consist of 45% debt, 5%
EXCEL
MI Inc. expects that its target capital structure for raising funds in the future for its capital budget will consist of 45% debt, 5% preferred stock, and 50% common equity. Note that the firm's marginal tax rate is 28%. Assume that the firm's cost of debt, rd, is 8.2%, the first's cost of preferred stock, rps, is 7.7% and the firm's cost of equity is 12.6% for older equity, rs, and 13.1% for new equity, re. What is the firm's weighted average cost of capital (WACC) if it uses retained earnings as its source of common equity? What is the firm's weighted average cost of capital (WACC2) if the firm has to issue new common stock? (Round your answer to three decimal places)Step by Step Solution
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