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Start with the partial model in the file Ch 1 1 P 1 8 Build a Model.xlsx . The stock of Gao Security analysts are
Start with the partial model in the file Ch P Build a Model.xlsx The stock of Gao
Security analysts are projecting that the common dividend will grow at a rate of a year. A flotation cost of would be required to issue new common stock. Gao's preferred stock sells for $ pays a dividend of $ per share, and new preferred stock could be sold with a flotation cost of The firm has outstanding bonds with years to maturity, a annual coupon rate, semiannual payments, and $ par value. The bonds are trading at $ The tax rate is The market risk premium is the riskfree rate is and Gao's beta is In its costofcapital calculations, Gao uses a target capital structure with debt, preferred stock, and common equity.
The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below.
Do not round intermediate calculations. Round your answers to two decimal places.
Download spreadsheet Ch P Build a Modelcafedxlsx
a Calculate the cost of each capital componentin other words, the aftertax 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.
Aftertax cost of debt
Cost of preferred stock including flotation costs
Cost of common equity, dividend growth approach
ignoring flotation costs
Cost of common equity, CAPM
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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