Project 1

XYZ manufacturing company is considering a major expansion program that has been proposed by the companys information technology manufacturing group. Before proceeding with the expansion, the company must estimate its cost of capital. Assume you are the CFO of the company. Your first task is to estimate XYZs cost of capital. Your analysts have provided you with the following data, which they believe may be relevant to your task.

Tax rate	35%
Bond info	Coupon	Annual payment	Years	Price
	9.5%		20 years	1500.00
Preferred stock	Par value	Annual Div Rate	Current Price		Dividend Payout Ratio
	100	12%	95		.5
Common stock	Last years Dividend	ROE	Beta	T-bond yield	Market Return Rate
	2.5	.055	1.5	4%	8%
Capital Structure	Debt	Preferred stock	Common stock
	60%	10%	30%

1. What sources of capital should be included when you estimate XYZs WACC? Also, what is WACC a measure of?

2. What is the market interest rate on XYZs debt and its component of after-tax cost of debt? Calculate YTM using the TVM function on your calculator.

3. What is the firms cost of preferred stock? Dividend Received Deduction doesnt qualify for this question.

4. What is XYZs required rate of return on common equity?

5. What is XYZs growth rate?

6. What is XYZs current stock price?

7. What is XYZs WACC?