Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): Skye's earnings per share last year were $3.20. The common stock seils for $65.00, last year's dividend (D0) was $2.20, and a flotation cost of 11 th would be required to sell new common stock, Security analysts are projecting that the common dividend will prow at an annual rate of 6%6. Skye's preferred stock pays a dividend of. $3.30 per share, and its preferred stock sells for $30.00 per share. The finm's before-tax cost of debt is 12%, and its marginal tak rate is 25%4. The firm's currently total debt, which is the sum of the companys short-term det at pac yalue. The market risk premlum is 4%, the risk-free rate is 5w, and skye's beta is 1.216. The frem's. The data has been collected in the Microsoft Excel file below, Downioad the spreadsheet and perform the required analysis to answer the questians below. Do not mound. intermediate calculations. Round your answers to two decimal places. 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 eamings, 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: Cost of new common stock: b. Now calculate the cost of cammon equity from retained earnings, using the CAPM mothod. 6. What is the cost of new common stock based on the CAPM? (Hint: Find the difference be Fen re and r4 as determined by the DCF method, and add that. diferential to the CAPM value for rs ) d. If Skye continues to use the same market-value capital structure, what is the firm's wacc assuming that (1) it uses only retained eamings for equity and (2) if it. expands so rapidly that it must issue new common stock? (hint: Uie the market value capital structure excluding current liabilies to determine the weights. Aso, use the simple average of the required values obtained under the two methods in calculating wacC.) WACC 1 : WACC 2! Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): Skye's earnings per share last year were $3.20. The common stock seils for $65.00, last year's dividend (D0) was $2.20, and a flotation cost of 11 th would be required to sell new common stock, Security analysts are projecting that the common dividend will prow at an annual rate of 6%6. Skye's preferred stock pays a dividend of. $3.30 per share, and its preferred stock sells for $30.00 per share. The finm's before-tax cost of debt is 12%, and its marginal tak rate is 25%4. The firm's currently total debt, which is the sum of the companys short-term det at pac yalue. The market risk premlum is 4%, the risk-free rate is 5w, and skye's beta is 1.216. The frem's. The data has been collected in the Microsoft Excel file below, Downioad the spreadsheet and perform the required analysis to answer the questians below. Do not mound. intermediate calculations. Round your answers to two decimal places. 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 eamings, 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: Cost of new common stock: b. Now calculate the cost of cammon equity from retained earnings, using the CAPM mothod. 6. What is the cost of new common stock based on the CAPM? (Hint: Find the difference be Fen re and r4 as determined by the DCF method, and add that. diferential to the CAPM value for rs ) d. If Skye continues to use the same market-value capital structure, what is the firm's wacc assuming that (1) it uses only retained eamings for equity and (2) if it. expands so rapidly that it must issue new common stock? (hint: Uie the market value capital structure excluding current liabilies to determine the weights. Aso, use the simple average of the required values obtained under the two methods in calculating wacC.) WACC 1 : WACC 2
