Waffle Corporation is estimating its WACC. Its target capital structure is 30 percent debt, 20 percent preferred stock, and 50 percent common equity. Its bonds have a 10 percent coupon, paid semiannually, a current maturity of 20 years, and sell at par of $1,000. The firm can sell at par ($100), preferred stock which pays a 9.5 percent annual dividend, but flotation costs of 5 percent of the proceeds would be incurred. Waffle's beta is 1.5, the Treasury bond yield is 5 percent, and the market risk premium is 6 percent. Waffle is a constant-growth firm which just paid a dividend of $2.00, sells for $55.00 per share of common equity, and has a growth rate of 10 percent. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to find the cost of common equity (rs). The firm's marginal tax rate is 25 percent.

Show all calculation procedures

1) What is Waffle's WACC?