Your cost of equity the 6% is the RM not the Rm-Rf. Costs of preferred not correct. Cost of debt not correct. Work not shown. Weights should be based on market values not book values.For the second part, debt financing, you need to find the cost of the new debt which only applies to the new debt. You need to find cost of the new date using rate, as you should have in part 1. All weights should be market price based.Must complete homework in Excel and submit showing work.

Number the problems and solutions

You are given the following information about a company. Their tax rate is 34%. The firm is in need of $5 million dollars in ext suggests that new bond issues can be lower than the current yield to maturity by 2.0% . You are not sure he is correct. Should y money? Existing capital structure: Debt: 5,000 Eight percent (8%) coupon bonds outstanding. The par value is $1000 and they mature in ten y Equity: 50,000 shares outstanding. The common stock is currently selling for $72 per share. The beta for t Preferred Stock: 10,000 shares of 2% preferred stock with a par value of $100, and is currently selling for Market Information: The risk of the market is 6% and the risk-free rate is 2%. The industry debt-equity rati The flotation rate for new debt is 3% and for new equity it is 5%. 1 Calculate the existing weighted average cost of capital. Yield of Bond Present of the Coupon PV of Face value Yield of Bond Cost of equity (RF+ Beta * Risk Premium ) Cost of Preferred Stock Value of debt (1000*5000) Value of equity Value of preferred stock Total Value 1250 5.40% 8.9 2 5000000 3600000 650000 9250000 WACC k e * E k d * (1 T ) * D WACC = 6.523 2 New cost of capital if add 5M in new bonds This assumes we sell enough bonds to realize 5M. Since the price will be net of flotation we need to sell th New Cost of Capital 5 M in new Bond (Floatation Cost 2%) 5 M in new equity (Floatation Cost 5%) 5.42 8.95 3 What if they finance the 5M with all equity? What would the capital structure and WACC look like? Value of all equity Value of debt Value of equity Value of preffered stock Total Value WACC 5000000 8600000 650000 14250000 7.394385965 or 8.65 4 What if they add 5M in financing split among debt and equity in proportions equal to the current capital str Value of Debt Value of equity Value of prefferd Stock Total Value WACC 7500000 6100000 650000 14250000 6.8 7.12 f $5 million dollars in external funds. Your bond advisor re he is correct. Should you issue the new debt to raise and they mature in ten years. They are currently selling for $1250 and make semiannual payments. per share. The beta for the company is 1.15. is currently selling for $65 per share. ndustry debt-equity ratio is 33%. tation we need to sell them at 1000 but net a bit less. WACC look like? to the current capital structure. What is the WACC