Exercise III $(15$ mins$)$

Colfax Inc. manufactures high$-$end ice cream makers to sell to companies across the globe. The

following market data on Colfax are current and available:

Debt $-130,0006\mathrm{.}1$ percent coupon bond outstanding, $25$ years to maturity, selling for $104$

percent of par; the bonds have a par value of $$2,000$ and make semiannual payments.

Common stock $-9,900,000$ shares outstanding, selling for $$68$ per share; the beta is $1\mathrm{.}20.$

Preferred stock $-400,000$ shares of preferred stock outstanding, selling for $$87$ per share with

a $$3\mathrm{.}65$ stated dividend. The next dividend payment is in exactly one year.

Market $-7$ percent expected market risk premium; $3\mathrm{.}1$ percent risk$-$free rate.

a$.$ Calculate the WACC. $($Use $21\%$ as a tax rate.$)$

b$.$ If the next dividend payment for preferreds is in $9$ months, what is the new WACC? $($Use

$21\%$ as a tax rate.$)$