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You know the following information about Ameritech Corporation. Ameritech is 30% debt financed, 50% equity financed, and 20% preferred stock financed. Ameritech Crop's common stock
You know the following information about Ameritech Corporation. Ameritech is 30% debt financed, 50% equity financed, and 20% preferred stock financed. Ameritech Crop's common stock has a beta of 1.5. The market risk premium is 5%, T-bill are yielding 4%. Ameritech's bond sells for 95% of par (par value-$1000), and has 10 years to maturity. The bond is paying interest annually and has a coupon rate 6%/year. Ameritech's tax is 40%. Ameritech's preferred stock pays annual dividend of $2 per year. The preferred stock is selling for $30 per share. Calculated the cost of equity, the pre-tax cost of debt, and the cost of preferred stock for Ameritech Crop. Calculate the weighted average cost of capital (WACC) for Ameritech Corp. Ameritech is considering a project which has the same risk as the firm's typical the new project has MIRR 15%, should Ameritech accept this project? Explain briefly
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