Question

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?

Answer #1

**Answer:**

WACC = (Weight of Debt * After Tax Cost of Debt) + (Weight of Preferred Stock * Cost of Preferred Stock) + (Weight of Equity * Cost of Equity)

Weight of Debt = 0.35

After Tax Cost of Debt = 0.065 * (1 – 0.27) = 0.04745

Weight of Preferred Stock = 0.09

Cost of Preferred Stock = 0.0475

Weight of Common Equity = 0.56

Cost of Equity = 0.1310

WACC = (0.35 * 0.04745) + (0.09 * 0.0475) + (0.56 *
0.1310)

WACC = 0.01661 + 0.00428 + 0.07336

WACC = 0.09424

or WACC = 9.42%

WACC of XYZ is 9.42%.

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.

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...

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%

XYZ Company’s target capital structure is 40% debt and 60%
common equity. The XYZ doesn’t carry any preferred stocks.
Theafter-tax cost of debt is 6.00% and the cost of retained
earnings is 10.25%. The cost of ne issuing stocks is 12%. XYZ
currently has retained earning of 50,000 and needs an additional
capital of $100,000. To maintain the same capital structure, What
is its WACC?

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%....

The following data refers to the next three questions: You were
hired as a consultant to Biggers Corp., and you were provided with
the following data: Target capital structure: 30% debt and 70%
common equity. The yield to maturity for the company’s debt is
7.0%. The company’s common stock is trading at a price of $50.00.
The company is expected to pay a dividend of $4.00 next year (D1),
and this dividend is expected to grow at a constant rate...

The following data refers to the next three questions: You were
hired as a consultant to Biggers Corp., and you were provided with
the following data: Target capital structure: 30% debt and 70%
common equity. The yield to maturity for the company’s debt is
7.0%. The company’s common stock is trading at a price of $50.00.
The company is expected to pay a dividend of $4.00 next year (D1),
and this dividend is expected to grow at a constant rate...

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 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...

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 12 minutes ago

asked 14 minutes ago

asked 15 minutes ago

asked 21 minutes ago

asked 23 minutes ago

asked 26 minutes ago

asked 30 minutes ago

asked 35 minutes ago

asked 57 minutes ago

asked 57 minutes ago

asked 1 hour ago