Rocco Company currently has a capital structure made up of debt, preferred stock and common stock. They are in the process of issuing more common stock and selling more bonds. Bond #1 is an existing bond that is selling for $950 and has a $1,000 par, 3.5% rate and 8 years to maturity. Float costs are 1.5% of the market price new bonds. It will pay interest on an annual basis. Bond #2 is a new bond that is currently selling for $975 and has a $1,000 par, 4.5% rate and 20 years to maturity. Float costs are 1.5% of the market price new bonds. It pays interest on an annual basis. Preferred stock is new and selling for $96 per share, with a $100 par value and an 6% dividend rate. Float cost are 2% of the market price with new issues. Common stock is currently selling for $80 and will pay an expected dividend of $1.55. Investors expect a 11% growth rate on this stock. The new stock has a 2.5% float cost associated with it. Determine the weighted average cost of capital for the Rocco Company using the chart below and the above/below information. Rocco has a 30% tax rate and the following market values per each security: AT Cost WACC Bond #1 Bond #2 Preferred Stock Existing Common Stock New Common Stock $ $18,000,000 12,000,000 10,000,000 48,000,000 12,000,000 Rocco Company currently has a capital structure made up of debt, preferred stock and common stock. They are in the process of issuing more common stock and selling more bonds. Bond #1 is an existing bond that is selling for $950 and has a $1,000 par, 3.5% rate and 8 years to maturity. Float costs are 1.5% of the market price new bonds. It will pay interest on an annual basis. Bond #2 is a new bond that is currently selling for $975 and has a $1,000 par, 4.5% rate and 20 years to maturity. Float costs are 1.5% of the market price new bonds. It pays interest on an annual basis. Preferred stock is new and selling for $96 per share, with a $100 par value and an 6% dividend rate. Float cost are 2% of the market price with new issues. Common stock is currently selling for $80 and will pay an expected dividend of $1.55. Investors expect a 11% growth rate on this stock. The new stock has a 2.5% float cost associated with it. Determine the weighted average cost of capital for the Rocco Company using the chart below and the above/below information. Rocco has a 30% tax rate and the following market values per each security: AT Cost WACC Bond #1 Bond #2 Preferred Stock Existing Common Stock New Common Stock $ $18,000,000 12,000,000 10,000,000 48,000,000 12,000,000
