YouTube Haritalar Time Remaining: 00:57:53 A Hide Time Remaining A You have been assigned to calculate the weighted average cost of capital (WACC) of XYZ firm. Debt The firm can raise debt by selling $1,000-par-value, 4% coupon interest rate, 11-year bonds on which annual interest payments will be made. To sell the issue, an average discount of S30 per bond would have to be given. The firm also must pay flotation costs of $35 per bond. The firm is in the 30% tax bracket. Preferred stock The firm can sell 8.5% preferred stock at its $100-per-share par value. The cost of issuing and selling the preferred stock is expected to be $8 per share. Preferred stock can be sold under these terms. Common stock The firm's common stock is currently selling for $80 per share. The firm expects to pay cash dividends of S7 per share next year. The firm's dividends have been growing at an annual rate of 6%, and this growth is expected to continue into the future. To sell new shares of common stock, the fimm must underprice the stock by S8 per share, and flotation costs are expected to amount to S6 per share. The firm can sell new common stock under these terms. Retained earnings When measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available $130,000 of retained earnings in the coming year: once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing. 2. Calculate the after-tax cost of debt, b. Calculate the cost of preferred stock. c. Calculate the cost of common stock. d. Calculate the firm's weighted average cost of capital using the capital structure weights shown in the following table, Source of capital Weight Long-term debt 3596 Preferred stock 15% Common stock equity 50% RI W A di 22:14 R122020 Meu average cost of capital using the capital structure weights shown in the following table, Weight Source of capital Long-term debt 35% Preferred stock 15% Common stock equity 50% Total 100% a. The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.) b. The cost of preferred stock is %. (Round to two decimal places.) c. The cost of retained earnings is %. (Round to two decimal places.) The cost of new common stock is %. (Round to two decimal places.) d. Using the cost of retained earnings, the firm's WACC is %. (Round to two decimal places.) Using the cost of new common stock, the firm's WACC is %. (Round to two decimal places.) Wine
