Integrated Problem: WACC

Calculating the WACC (Weighted Average Cost of Capital) for Blue Sky Cloud Computing, Inc.

In the spring of 2015, Blue Sky Cloud Computing is considering the acquisition of a chain of smaller cloud computing service providers. Blue Skys investment bankers have contracted with your boutique investment banking firm to calculate the WACC. You are tasked with estimating Blue Skys own WACC as a guide to the cost of capital for the acquisition. Blue Skys capital structure consists of the following:

	Market Values
Debt	$100 million
Preferred Stock	$50 million
Common Stock	$250 million

The investment banker has provided the following information.

Before Tax Cost of Debt = 8%	Preferred Stock Price = $50	Risk Free Rate = rRF = 2%
Tax Rate = 25%	Preferred Stock Dividend = $5	Investors Required Rate of Return = rm = 12%
		Beta = B = 1.3

Note: Cost of Common Equity (Please use the Capital Asset Pricing Model) Rs = rRF + (rm rRF) B

7.a Find the weights & cost for each source of capital

Debt Weight =_____________ Preferred Stock Weight = ____________ Common Stock Weight = _______________

After Tax Debt Cost = ______ Preferred Stock Cost = _______________ Common Stock Cost = ______________