Question

1. A company wants to raise money. The company will
sell **$12M** of common stock, the expected return is
**18%**. The company has
**$5M** in preferred stock at a rate of
**10%**. Moreover, the company will issue
**$8M** of debt, the cost of debt is
**13%** and the tax rate is
**30%**. Find the WACC (show your
solution)

2. Find the future value of $10,000, earning 5% interest per quarter after two years.

Answer #1

1. A company wants to raise money. The company will
sell **$12M** of common stock, the expected return is
**18%**. The company has
**$5M** in preferred stock at a rate of
**10%**. Moreover, the company will issue
**$8M** of debt, the cost of debt is
**13%** and the tax rate is
**30%**. Find the WACC

E = 12 M

P = 5 M

D = 8 M

Total value, V = 12 M + 5 M + 8 M = $25 M

rd = 0.13

re = 0.18

rp = 0.10

**WACC = 13.552%**

2. Find the future value of $10,000, earning 5% interest per quarter after two years.

r = 5%/4 = 0.0125 per quarter

n = 2 * 4 = 8 quarters

FV = PV * (1 + r)^n

FV = 10,000 * (1 + 0.0125)^8

**FV = $11,044.8610118141**

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