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full questions in pic 3, options in 1&2 5. Cost of new common stock firm's new common stock is The weighted average cost of capital

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full questions in pic 3, options in 1&2
image text in transcribed
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5. Cost of new common stock firm's new common stock is The weighted average cost of capital (WACc) is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropiate distount rate only for a project of average risk. Consider the case of Tumbull Company: Turnbul Compary has a tamget capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.20%, and its cost of preferred stock 159.30%. If Turnbull can raise ail of its equity capital from retained earnings, its cost of common equity will be 12.40%. However, if it is necessary to raise new common equity, it will carry a cost of 14.20%. If its current tax rate is 40%, Turnbull's weighted average cost of capital (WACC) will be higher if it has to raise additional common equity. capital by issuing new common stock instead of raising the funds through retained earnings. Turnbult Company is considering a project that requires an initial investment of $270,000.00, The firm will raise the $270,000.00 in capital by issuing $100,000,00 of debt at a before-tax cost of 10.20%,$30,000.00 of preferred stock at a cost of 11.40%, and $140,000.00 of equity at a cost of 14.3096. The firm faces a tax rate of 40%. The WACC for this project is Consider the case of Turnbuli Company: Tumbull Company has a target capital structure of 585 debt, 6% preferred stock, and : and its cost of preferred stock is 9.3056. If Turnbull can raise all of its equity captal fron However, if it is necessary to raise new common equity, it will carry a cost af 14.20%. If its camrent tax rake is 400%, Turnbulls weighted average cost of captal (WAcc) WH be highes of it has to raise additional common equity capital by issumg new comman stock instead of ralsing the funds through retained eamings: Turnbull Company has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity, It has a before-tax cost of dubt of B. 20nk. and its cost of preferred stock is 9.30\%. If Turnbull can raise all of its equity copital from retained earrings, its cost of common equaty will be 12.40%. However, if it is necessary to raise new corrmon equity, it will carry a cost of 14.20% w. Consider the case of Turnbull Company: Tumbull Company has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debe of 8.20%, and its cost of preferred stock is 9.309. If Tumbul can raise all of its equity capital from retained eamings, its cost of corrsmon equity will be 12.40%. However, if it is necessary to raise new common equity, it will carry a cost of 14.20%. If its current tax rate is 40%, Turnbuli's weighted average cost of capital (WACC) will be higher it it his to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings. Tumbull Company is considering a project that requires an initial investment of $270,000.00. The firm will roise the $270,000.00 in capital by issuing $100,000.00 of debt at a before-tax cost of 10:20%,$30,000,00 of preferred stock at a cast of 11.40%6, and $140,000,00 of equity at a cost of 14.309. The firm faces a tax rate of 4096 . The WACC for this project is

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