P10-3 WACC Suppose that Ferry Landings, Inc., Inc. has a capital structure of 37 percent equity, 17 percent preferred stock, and 46 percent debt. If the before-tax component costs of equity, preferred stock and debt are 14.5 percent, 11 percent and 9.5 percent, respectively What is Ferry Landings, Inc.'s WACC if the firm faces an average tax rate of 30 percent? P10-1 Fairyland Inc. has a $2 million (face value) 10 year bond issue selling for 97 percent of par that pays an annual coupon of 8.25 percent. What would be Fairyland's before-tax component cost of debt? It is a Time Value of Money problem- use the formula, Excel, or Financial Calculator app. P10-2 Fairyland Inc. has 2 million shares of common stock outstanding, 1 milion shares of preferred stock outstanding, and 2 thousand bonds. The common shares are selling for $27 per share, the preferred share are seling for $14.50 per share, and the bonds are selling for 98 percent of their $1,000 Using the WACC equation: A. What would be the weight used for equity in the computation of FarCry's WACC? WACC E+P+DEP+DE+P+D Using the computation for equity weight: E+P+D P10-4 An all-equity firm is considering the projects shown below. The T-bill rate is4 percent and the market risk premium is 7 percent. If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), if any, will be incorrectly rejected? B. What weight should you use for debt in the computation of Fairyland 's WACC? Using the computation for debt weight: Beta 0.5 8.0% 19.096 13.096 17.0% E+P+D C. What weight should you use for preferred stock in the computation of Fairyland's WACC? 1.6 Using the computation for preferred equity weight: Using the firm's WACC of 12 percent as the IRR benchmark, project A would be rejected. Using equation 11-2, the project-specific benchmarks for each project should For Project A,-, +ALE(%)-5] For Project B: ,,-, +A, | E ( For Project C: rr + M. | E(4.)-r, 1 )