Question

You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 10.50%, and the tax rate is 25%. The firm will not be issuing any new stock. What is Quigley's WACC? Round final answer to two decimal places. Do not round your intermediate calculations.

Answer #1

Given | ||||||

Interest Rate of Debt = 6.5% | ||||||

Yield on Preferred Stock = Kp = 6% | ||||||

Cost of Retained Earnings = Ke = 10.50% | ||||||

Tax Rate = 25% = 0.25 | ||||||

Calculation - | ||||||

1 | Cost of Debt = Kd = Interest Rate of Debt After Tax | |||||

= | 'Interest Rate of Debt (1-Tax Rate) | |||||

= | 6.5% (1-0.25) | |||||

= | 4.875% | |||||

2 | WACC | |||||

Particulars | Weights (Wt) | Cost | Wt x Cost | |||

Debt | 35 | 4.875% | 1.71 | |||

Preferred Stock | 10 | 6% | 0.60 | |||

Retained Earnings | 55 | 10.50% | 5.78 | |||

WACC |
8.09 |
|||||

WACC =
8.09% |

13.) You were hired as a consultant to XYZ Company, whose target
capital structure is 35% debt, 9% preferred, and 56% common equity.
The interest rate on new debt is 6.50%, the yield on the preferred
is 4.75%, the cost of common from retained earnings is 13.10%, and
the tax rate is 27.00%. The firm will not be issuing any new common
stock. What is XYZ's WACC?

Avery Corporation's target capital structure is 35% debt, 10%
preferred, and 55% common equity. The interest rate on new debt is
6.50%, the yield on the preferred is 6.00%, the cost of common from
reinvested earnings is 11.25%, and the tax rate is 25%. The firm
will not be issuing any new common stock. What is Avery's WACC?
a. 8.83%
b. 8.49%
c. 9.94%
d. 9.55%
e. 9.19%

You were hired as a consultant to AICC Company, whose target
capital structure calls for 30% debt, 5% preferred, and 65% common
equity. The Company’s common stock currently sells at $20 per share
and just paid $1 annual dividend per share (D1). The
dividend is expected to grow at a constant rate of 5% a year. (10
pts)
Using the DCF model, what is the company’s cost of common
equity.
If the firm’s beta is 1.2, the risk-free rate ,rfr...

The firm's target capital structure is the mix of debt,
preferred stock, and common equity the firm plans to raise funds
for its future projects. The target proportions of debt, preferred
stock, and common equity, along with the cost of these components,
are used to calculate the firm's weighted average cost of capital
(WACC). If the firm will not have to issue new common stock, then
the cost of retained earnings is used in the firm's WACC
calculation. However, if...

Consider the case of Turnbull Co.
Turnbull Co. has a target capital structure of 58% debt, 6%
preferred stock, and 36% common equity. It has a before-tax cost of
debt of 8.2%, and its cost of preferred stock is 9.3%.
If Turnbull can raise all of its equity capital from retained
earnings, its cost of common equity will be 12.4%. However, if it
is necessary to raise new common equity, it will carry a cost of
14.2%.
If its current...

Turnbull Co. has a target capital structure of 45% debt, 4%
preferred stock, and 51% common equity. It has a before-tax cost of
debt of 11.1%, and its cost of preferred stock is 12.2%.
If Turnbull can raise all of its equity capital from retained
earnings, its cost of common equity will be 14.7%. However, if it
is necessary to raise new common equity, it will carry a cost of
16.8%.
If its current tax rate is 40%, how much...

Turnbull Co. has a target capital structure of 45% debt, 4%
preferred stock, and 51% common equity. It has a before-tax cost of
debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull
can raise all of its equity capital from retained earnings, its
cost of common equity will be 12.4%. However, if it is necessary to
raise new common equity, it will carry a cost of 14.2%. If its
current tax rate is 25%, how much...

You were hired as a consultant to Biggers Corp., and you were
provided with the following data: Target capital structure: 20%
debt and 80% common equity. The yield to maturity for the companyâ
s debt is 6.0%. The companyâ s common stock is trading at a price
of $50.00. The company is expected to pay a dividend of $3.50 next
year (D1), and this dividend is expected to grow at a constant rate
of 4.0%. The tax rate is 40%....

Consider the case of Turnbull Co.
Turnbull Co. has a target capital structure of 45% debt, 4%
preferred stock, and 51% common equity. It has a before-tax cost of
debt of 8.2%, and its cost of preferred stock is 9.3%.
If Turnbull can raise all of its equity capital from retained
earnings, its cost of common equity will be 12.4%. However, if it
is necessary to raise new common equity, it will carry a cost of
14.2%.
1) If its...

The Cost of Capital: Weighted Average Cost of
Capital
The firm's target capital structure is the mix of debt,
preferred stock, and common equity the firm plans to raise funds
for its future projects. The target proportions of debt, preferred
stock, and common equity, along with the cost of these components,
are used to calculate the firm's weighted average cost of capital
(WACC). If the firm will not have to issue new common stock, then
the cost of retained earnings...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 11 minutes ago

asked 22 minutes ago

asked 24 minutes ago

asked 29 minutes ago

asked 42 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago