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PLEASE USE EXCEL FUNCTIONS 8) Start with the partial model in the file Ch09 P18 Build a Model.xlsx on the textbook's Web site. The stock
PLEASE USE EXCEL FUNCTIONS 8) Start with the partial model in the file Ch09 P18 Build a Model.xlsx on the textbook's Web site. The stock of Gao Computing sells for $50, and last year's dividend was $3.13 Security analysts are projecting that the common dividend will grow at a rate of 7% a year. A flotation cost of 10% would be required to issue new common stock. Gao's preferred stock sells for $32.61, pays a dividend of $3.30 per share, and new preferred stock could be sold with a flotation cost of 8%. The firm has outstanding bonds with 20 years to maturity, a 12% annual coupon rate, semiannual payments, $1,000 par value. The bonds are trading at $1,171.59. The tax rate is 25%. The market risk premium is 6%, the risk-free rate is 6.5%, and Gao's beta is 1.2 . In its cost-of-capital calculations, Gao uses a target capital structure with 45% debt, 5% preferred stock, and 50% common equity. a. Calculate the cost of each capital component-in other words, the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the cost of equity (ignoring flotation costs). Use both the CAPM method and the dividend growth approach to find the cost of equity. b. Calculate the cost of new stock using the dividend growth approach. c. Assuming that GAO will not issue new equity and will continue to use the same target capital structure, what is the company's WACC
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