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1. A company wants to raise money.  The company will sell $12M of common stock, the expected...

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.       

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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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