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 approprate discount rate only for a project of average risk. Analyze the cost of copital situations of the foliowing company cases, and answer the specific questians that finance professionals need to address. Consider the case of Turnbull Co. Tumbult Co. has a target capital structure of 58% debt, 6% preferred stock, and 364 cammon equity, It has a before-tax cost of debt of 11.14%, and its cost of preferred stock is 12.2%. If Tumbuil can raise all of its equity capital from retatied earnings, its cost of common equity will be 14.7\%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%, If its curfent tax rate is 25%, how much higher will Tumbull's weighted average cost of copital (WACC) be if it has to ralse additional common equlty capital by issung new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal nlaces.) 0.685% 0.9946 0.95% 0.76% 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 11.1%,$20,000 of preferred stock at a cost of 12.2%, and $320,000 of equity at a cost of 14.7%. 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.) Considet the case of Kuhn Co. Kuhn Co. is considering a new project that witi require an initial imvestment of $4 miliion. It has a target capital structure of 58% debt, 6% stock, and 36% common equity. Kuhn thas noncallable bonds outstanding that mature in five years with a face value of 51,000 , an annual eoupon rate of 10%, and a market price of $1,050.76. The vieid on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can seli shares of preferred stock that pay an annual dividend of $9 at a price of $95.70 per share. Kuhn does bot have any retained earnings avallable to finance this project, so the frm will have to issue new common stock to help fund it. Its common stock is currently seiling for $22.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Flotation costs will represent bo of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.276, and they face a tax rate of 25\%. What will be the WACC for this project? (Note: Round your intermediate calculations to two decimal places.)
