The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WacC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the fotlowing company cases, and answer the specific questions that finance professionals need to address. Consider the case of Tumbull Co. Turnbull Co, has a tarpet capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Turnbull can raise all of its equity capital from retained earning5, its cost of commont equity will be 14.79. However, if it is necessary to false new common equity, it will carry a cost of 16,8% If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise adiditional common equity capital by issuing new common stock instead of raising the funds through retained carnings? (Note: Round your intermediate caiculations to two decimal places.) 0.75% 1.01% 0.90% 0.98% Turnbull Co. is considering a project that requires an initial investment of $570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 9.6%,$20,000 of preferred stock at a cost of 10.7%, and $320,000 of equity at a cost of 13.5%. The firm faces a tax rate of 40%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.) Consider the case of Kuhn Co. Kuhn C0, is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. Kuhn has noncaliable bonds outstanding that mature in five years with a foce value of $1,000, an annual coupon rate of 10\%, and a market price of $1,050.76. The yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of 59 at a price of $95.70 per share. Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to heip fund it, Its common stock is currently selling for $22.35 per share, and it is expected to pay a dividend of 52.78 at the end of next year, Flotation costs will regresent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40%. What will be the WACC for this praject? (Note: Round your intermediate calculations to two decimal places:)
