P$9-19$ Calculation of individual costs and WACC Chevron Corporation $($CVX$)$ has

$1,865,864,238$ shares of common stock outstanding selling at $$92\mathrm{.}22$ per share.

Chevron also has $28,247,195$ bonds outstanding with a $3\mathrm{.}078\%$ coupon rate, ma$-$

turing in $30$ years, and selling for $108\mathrm{.}74\%$ of par. For the last six years Chevron

has paid the following dividends on its common stock:

a$.$ Calculate the market value weights for Chevron's capital structure.

b$.$ Calculate Chevron's cost of equity.

c$.$ Calculate Chevron's before$-$tax cost of debt.

d$.$ Calculate Chevron's current WACC using a $21\%$ corporate tax rate.

P$9-20$ Cost of capital GB Timbers GmbH$,$ based in Germany, supplies timber products to

construction and manufacturing industries. The company reported after$-$tax earnings

available to common stock of $3,200,000.$ From these earnings, the management de$-$

cided to pay a dividend of $0\mathrm{.}80$ on each of its $4,000,000$ common shares outstand$-$

ing. The capital structure of the company includes $30\%$ debt, $40\%$ common stock,

and $30\%$ preferred stock. The tax rate applicable to GB Timbers is $30\%.$

a$.$ If the market price of the common stock is $3\mathrm{.}60$ and dividends are expected to

grow at a rate of $8\%$ per year for the foreseeable future, what is the required

return on the company's common stock?

b$.$ If underpricing and flotation costs on new shares of common stock amount to

$0\mathrm{.}40$ per share, what is the company's cost of new common stock financing?

c$.$ The company can issue a $1\mathrm{.}00$ dividend preferred stock for a market price of

$10\mathrm{.}00$ per share. Flotation costs would amount to $0\mathrm{.}60$ per share. What is the

cost of preferred stock financing?

d$.$ In addition, the company can issue $100-$par$-$value, $8\%$ coupon, $10-$year bonds

that can be sold for $110$ each. Flotation costs would amount to $2$ per bond.

Use the estimation formula to figure the approximate cost of debt financing.

c$.$ What is the WACC?

P$9-21$ Calculation of individual costs and WACC Parry Instruments has asked its financial

manager to measure the cost of each specific type of capital as well as the weighted

average cost of capital $($WACC$).$ The WACC is to be measured by using the follow$-$

ing weights: $30\%$ long$-$term debt, $40\%$ preferred stock, and $30\%$ common stock

equity $($retained earnings, new common stock, or both$).$ The firm's tax rate is $25\%.$

Long$-$term debt The firm can sell for $103$ a ten$-$year, $100-$par$-$value bond paying

annual interest at a $4\%$ coupon rate. A flotation cost of $2$ per bond is required.