Question
PLEASE explain in great detail You are about to start to consider a batch of new capital budgeting projects. Before you begin you need to
PLEASE explain in great detail
You are about to start to consider a batch of new capital budgeting projects. Before you begin you need to estimate your companys Weighted-Average-Cost-of-Capital (WACC). The firm operates in the 21% marginal tax bracket. There are 4 sets of liability holders on the balance sheet. Calculate the WACC including all four classes of liabilities.
A. There are 6,390,000 shares of common stock outstanding. These are trading at $46.21 per share. You have decided to use the Gordon Growth Model to estimate the return required by your firms shareholders. In the most recent annual report the earnings per share (EPS) were $3.55. You feel that it is reasonable to assume that earnings will grow at about 1.10% into the foreseeable future.
B.There is an issue of 3,192,000 shares of preferred stock. These securities promise an (perpetual) annual dividend of $1.85. The shares are currently trading for $24.52.
C.There is an issue of 155,000 coupon bonds, which have a face value of $1,000, pay 4.45% (annual) coupons, and mature in 9 years. The securities are currently trading for $1,033.46.
D. The firm also has 50 short-term commercial paper notes outstanding that have a face value of $1,000,000, and mature in 21 days. These are currently selling for $998,412.44.
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