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 appropilate discount rate only for a project of averege risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Turnbull Co. Tuenbull Co, has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Tumbull can ralse all of its equity capital from retained eamings, its cost of common equity will bo 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. It its current tax rate is 25%, how much higher will Tumbull's weighted average cost of capital (wacC) be if it has to raise additional common equity Capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decinal places.) 0.728 0.65% 0.785 Turnbuti Co. is considering a project that requires an initial investment of $270,000. The firm will raise the $270,000 in capital by issuing $100,000 of debt at a before-tax cost of B.7\%, $30,000 of preferred stock at a cost of 9.9%, and $140,000 of equity at a cost of 13,2%. The firm faces a tax rate of 25%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.) Consider the case of Kuhn Co. Kuth CO, is considering a new project that will require an initial investment of $20 milion. It has a target capital structure of 58% debt, 6% preferred stock, and 36 's common equaty. Kouhn has noncallable bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10\%, and a market price of 51,050.76. 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 $8 at a price of $92.25 per share. Kutin does not have any retained earnings avallable to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is cqriently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Flotation cocts wilf represent 3% of the funds rabed by issuing new common stock. the company is projected to grow at a constant rate of 8.7\%6, and they face a tax rate of 25\%. What wall be the wacc fos this project? (Note: Found your intermediate calculations to two decimal places-) 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 appropilate discount rate only for a project of averege risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Turnbull Co. Tuenbull Co, has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Tumbull can ralse all of its equity capital from retained eamings, its cost of common equity will bo 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. It its current tax rate is 25%, how much higher will Tumbull's weighted average cost of capital (wacC) be if it has to raise additional common equity Capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decinal places.) 0.728 0.65% 0.785 Turnbuti Co. is considering a project that requires an initial investment of $270,000. The firm will raise the $270,000 in capital by issuing $100,000 of debt at a before-tax cost of B.7\%, $30,000 of preferred stock at a cost of 9.9%, and $140,000 of equity at a cost of 13,2%. The firm faces a tax rate of 25%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.) Consider the case of Kuhn Co. Kuth CO, is considering a new project that will require an initial investment of $20 milion. It has a target capital structure of 58% debt, 6% preferred stock, and 36 's common equaty. Kouhn has noncallable bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10\%, and a market price of 51,050.76. 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 $8 at a price of $92.25 per share. Kutin does not have any retained earnings avallable to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is cqriently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Flotation cocts wilf represent 3% of the funds rabed by issuing new common stock. the company is projected to grow at a constant rate of 8.7\%6, and they face a tax rate of 25\%. What wall be the wacc fos this project? (Note: Found your intermediate calculations to two decimal places-)
