WACC (Weighted Average Cost of Capital) Calculation for Blue Sky Cloud Computing, Inc.

In spring 2015, Blue Sky Cloud Computing is considering the acquisition of a chain of smaller cloud computing service providers. Blue Sky investment bankers have contracted with their boutique investment banking firm to calculate the WACC. He is tasked with estimating Blue Sky's own WACC as a guide to the cost of capital for the acquisition. Blue Sky's capital structure consists of the following:

	market values
Debt	$100 million
Preferred stock	$50 million
Common actions	$250 million

The investment banker has provided the following information.

Cost of debt before taxes = 8%	Preferred stock price = $50	Risk Free Rate = rRF = 2%
Tax rate = 25%	Preferred stock dividend = $5	Investor Required Rate of Return = rm = 12%
		Beta = B = 1.3

Note: Cost of common capital (use capital asset pricing model) Rs = rRF + (rm – rRF) B

7.a Find the weights and costs for each source of capital

Weight of debt =_____________ Weight of preferred stock = ____________ Weight of common stock = _______________

After-tax cost of debt = ______ Cost of preferred stock = _______________ Cost of common stock = ______________