Question
The following information is given about your company. The company needs raise new capital to expand its facilities. The companys optimum capital structure has been
The following information is given about your company. The company needs raise new capital to expand its facilities. The companys optimum capital structure has been 40% debt, 10% preferred stock and 50% equity. The company will maintain this capital structure in financing this expansion plan. Currently the company's common stock is traded at a price of $15.65 per share. The last dividend paid on the common stock was $1.25 per share. The company will grow at 6% constant rate for long time in the future. The company's preferred stock is selling at $85 and has a quarterly preferred dividend of $1.35. Flotation costs have been estimated at 8% on the common stocks and 5% on the preferred stocks. The company has some bonds with $1000 par value outstanding, the market price of the bonds is $1025, and the bonds have 14 years to maturity. The coupon rate on those bonds is 8% with semi-annual payments. The tax rate is 40%.
What is the WACC for this company if they will issue new common stocks and new preferred stocks?
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