The WACC is used as the discount rate to evaluate varlous capitat budgeting profects. However, it is important to realize that the WACC is an appropriste discounk rate only for a brojeck of average risk. Analyze the cost of capital stuations of the folowing company cases, and answer the specific questions that finance professionsls need to address. Consider the case of Turnbull Co. Tumbull Ce. has a target copital structure of 56% debt, 6% preferred shock, and 36% common equity. It has a before-tax cost of debt of 11,1 W, and its cost of preferted stock is 12.246 If Tumbull can ralse all of its equity capital from retalned earnings, its cost of common equity will be 14.74 . Howeved, if is is necessary to ralse new common equity, it witl carry a cost of 16.8 .4 \). If its current tex rate is 40%, how much higher wilt Tumbulis weighted average cost of capital (WAcC) be if it has to raise additional common equity capital by issuing hew consmon stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculabions to two oecimal places.) 0.75% 0. 996 Tumbuli Co. is consldering a prolect that requires an inalial investment of 3270,000 . The firm wil raise the $270,000 in capial oy issuing 5100,000 of debt at a before-tax cost of 10,2W. 130,000 of preferred stock at a cost of 11,4w, and 5140,000 of equity at a cost of 14,3\%. The frm faces a tax rste of 40%. What wil be the whcc for this project? (Noter lleund vour intermedibte calculations to three decimal pioceli) Consider the ease of Kuhn Co. Consider the case of Kuhn Co. Kuhn Co, is considering a new project that will require an initial investment of $20 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Kuhn has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1555.38. The yield on the compary's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell thares of preferred stock that pay an annual dividend of $9 at a price of $95.70 per share. Wuhn does not have any retalned eamings avaltable to finance this project, so the fimm will have th issue new common stock to help fund it. its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 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 fax. rate of 40%. What wol be the WACC for this project? (Note: Round your intermediate calculations to two decimal places.)
