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please need help with this question ASAP! Western Electric Utility Company faces increasing needs for capital. Fortunately it has an A credit rating The corporate
please need help with this question ASAP!
Western Electric Utility Company faces increasing needs for capital. Fortunately it has an A credit rating The corporate tax rate is 40 percent. Western's treasurer is trying to determine the corporation's current weighted average cost of capital to assess the profitability of capital budgeting projects. Historically, the corporation's earnings and dividends per share have increased at about a 8.2 percent annual rate Western Electric's common stock is selling at $64 per share, and the company will pay a $6.50 per share dividend (D1). The company's $96 preferred stock has been yielding 8 percent in the current market. Flotation costs for the company have been estimated by its investment dealer to be $6.00 for preferred stock. The company's optimum capital structure is 55 percent debt, 20 percent preferred stock, and 25 percent common equity in the form of retained earnings. Refer to the table below on bond issues for comparative yields on bonds of equal risks to Western Electric, maturing in 2027. (Round the final answers to 2 decimal places.) Data on Bond Issues Yield to ting price Price Maturity Issue Utilities Bell Canada 6.55%, 2029 TransCanada 6.89%, 2028 Westcoast Energy 6.75%, 2027 A (high)99.44 6.64 103.55 6.64 99.93 6.81 ow Industrials Loblaw 6.45%, 2028 GrTAA 6.45, 2027 Shaw 8.54%, 2027 A (high) 99.63 6.53 95.80 6.86 BB (high) 101.12 8.48 a. Compute the cost of debt, Kd. Cost of debt b. Compute the cost of preferred stock, Kp Cost of preferred stock c. Compute the cost of common equity in the form of retained earnings, Ke. Cost of common equity d. Compute the weighted average cost of capital. (Round intermediate calculations to 2 decimal places.)Step by Step Solution
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