Looking for some help on this! It's for a finance class and I have the "answer key" - i just don't know how to reach those answers and need to be ready for my exam

1. Indicate whether each of the following actions would increase or decrease a firm's WACC. points) a. A firm expands into a new riskier venture. (3 _____________________ b. A firm dramatically increases the amount of capital new projects. _____________________ c. A firm uses more equity and less debt in its capital structure to expand operations. _____________________ 2. Vandelay Industries Inc. has a target capital structure of 60% common equity and 40% debt and is looking to fund $5 billion in capital projects for the next year. Vandelay Industries has a target WACC of 12%, bonds that sell at par with a coupon rate of 9% and a tax rate of 35%. The company hopes their retained earnings will be adequate to fund the equity portion of Vandelay's capital budget. Vandelay expects to pay a year-end dividend of $3.50 and their common stock currently sells for $32. (5 points) a. What is Vandelay's growth rate? b. Vandelay expects net income for the year to be approximately $520 million and they anticipate paying out 40% of those earnings in dividends. What is Vandelay's breakpoint in retained earnings? 3. Kruger Industrial Smoothing has a target capital structure consisting of 30% debt, 5% preferred stock, and 65% common equity. Kruger has 20-year, 7.25% semiannual coupon bonds that are selling for $875. Kruger's preferred stock sells for $95 and pays a 9% dividend on a $100 par value. Kruger is a constant growth firm with a growth rate of 4% and just paid a dividend of $2.35 on its common stock that is currently selling for $30.00 per share. The beta is 1.25 and the risk free rate is 5.25%. The required return on the stock market is 11.50%. The firm's marginal tax rate is 40%. (8 points) a. What is Kruger's component after-tax component cost of debt? 1 b. What is Kruger's component cost of preferred stock? c. What is Kruger's component cost of common equity based on the CAPM? d. What is Kruger's component cost of common equity based on the DCF model? e. What is the WACC for Kruger assuming the firm use an average component cost of equity given the two methods used? 2