ty: Calculating the WACC Excel Activity: Calculating the WACC Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars) Current assets 2021 $2.000 Net fixed assets 3,000 Total assets $5.000 Accounts payable and accruals $900 Short-term debt 100 Long-term debt 1,425 Preferred stock (15,000 shares) 325 Common stock (40,000 shares) 1.100 Retained earnings 1.150 Total common equity $2.250 Total liabilities and equity $5.000 Skye's earnings per share last year were $2.15. The common stock sells for $60.00, last year's dividend (D) was $1-35, and a flotation cost of 30% would be required to sell new common stock Secunty analysts are projecting that the common dividend will gruse at an annual rate of 9%. Skye's preferred stock pays a dividend of $2.25 per share, and its preferred stack sells for $25.00 per share. The firm's before tax cost of debt is 10% and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt ses at par valve. The market k premium is 6%. the risk-free rate is 7%, and Skye's beta is 1.274. The firm's total debt, which is the sum of the company's short-term debt and long term debt, equals $1.525 in The data has been collected in the Microsoft Excel fie below. Download the spreadsheet and perform the requred analysis to answer the questions belis. De not round intermediate calculations Round your answers to two decimal places. Back Next x Show all 1:51 AM Partly cloudy NDTAP lating the WACC Search this cou a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained eamings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. After-tax cost of debti % Cost of preferred stock: Cost of retained earnings Cost of new common stocki 1% b. Now calculate the cost of common equity from retained eamings, using the CAPM method. c. What is the cost of new common stock based on the CAPM) (Hint: Find the difference between r, and r, as determined by the DCF method, and add that differential to the CAPM value for 3 d. If Skye continues to use the same market value capital structure, what is the firm's WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that must issue new common stock? (Hint Use the market value capital structure excluding current liabilities to determine the sights. Also, use the simple average of the required values obtained under the two methods in calculating WACC.) WACC WACC " Check My Work Resel Problem Back Excel Activity Calculating the WACC Question 1 0/10 Submit Excel Activity: Calculating the WACC Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): 2021 Current assets $2,000 Net fixed assets 3,000 Total assets $5,000 Accounts payable and accruals $900 Short-term debt 100 Long-term debt 1,425 Preferred stock (15,000 shares) 325 Common stock (40,000 shares) 1,100 Retained earnings 1,150 Total common equity Total liabilities and equity $2,250 $5,000 13 Skye's earnings per share last year were $2.15. The common stock sells for $60.00, last year's dividend (De) was $1.35, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skye's preferred stock pays a dividend of $2.25 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 10%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 6%, the risk-free rate is 7%, and Skye's beta is 1.274 The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.525 million. Excel Activity Calculating the WACC Question 1 0/10 Submit Search this course , , , , The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.525 million. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Round your answers to two decimal places. ex Download spreadsheet Calating the WACC 71dd a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. After-tax cost of debt: Cost of preferred stock: Cost of retained earnings Cost of new common stock: b. Now calculate the cost of common equity from retained earnings, using the CAPM method. % c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r, and r, as determined by the DCF method, and add that differential to the CAPM value for r E MINDTAP Calculating the WACC Cost of preferred stock: % Cost of retained earnings: Cost of new common stock: % % Q Search this cours b. Now calculate the cost of common equity from retained earnings, using the CAPM method. % c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between re and r, as determined by the DCF method, and add that differential to the CAPM value for r.) d. If Skye continues to use the same market-value capital structure, what is the firm's WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock? (Hint: Use the market value capital structure excluding current liabilities to determine the weights. Also, use the simple average of the required values obtained under the two methods in calculating WACC.) WACC: % WACC: % Check My Work Reset Problem Nex 1 Calculating the WACC 2 3 Skye Computer Company: Balance Sheet as of December 31 4 (in thousands of dollars) 5 6 Current assets 2021 $2,000 7 Net fixed assets 3,000 8 Total assets $0 9 10 Accounts payable and accruals $900 11 Short-term debt 100 12 Long-term debt 1,425 13 Preferred stock 14 Common stock 15 Retained earnings 16 Total common equity 17 Total liabilities and equity 18 325 1,100 1,150 $0 $0 19 Last year's earnings per share $2.15 20 Current price of common stock, Po $60.00 21 Last year's dividend on common stock, Do $1.35 22 Growth rate of common dividend, g 9% 23 Flotation cost for common stock, F 10% 24 Common stock outstanding 40,000 25 Current price of preferred stock, Pp $25.00 26 Dividend on preferred stock, Dp 27 Preferred stock outstanding $2.25 15,000 28 Before-tax cost of debt, ra 29 Market risk premium, TM - TRF Sheet1 10% 6% 30 Risk-free rate, far 31 Beta 32 Tax rate 33 Total debt 34 7% 1:274 25% $1,525 thousand 35 a. Calculating the cost of each capital component (using the DCF method to find 36 the cost of common equity) 37 After-tax cost of debt 38 Cost of preferred stock 39 Cost of retained earnings 40 Cost of new.common stock 41 42 b. Calculating the cost of common equity from retained earnings, using the CAPM method 43 Cost of retained earnings 44 45 c. Calculating the cost of new common stock based on the CAPM 46 Flotation cost adjustment 47 Cost of new common stock Formulas NA N/A MUA NIA INIA ANA N/A 48 50 49 d. Calculating the firm's WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock Market value. Market value. 51 (in thousands) Weight (in thousands) Weight 52 Total debt NIA NIA 53 Preferred stock #N/A N/A 54 Common equity 55 Total 56 57 WACC 58 WACC Sheet N/A MUN NA UA NIA NIA Ready Type here to search