Company X is considering changing its capital structure in light of the tough bu

Question

Company X is considering changing its capital structure in light of the tough business environment. Currently, Company   X' s total capital consists of:

The debt coupon is 8% and tax rate is 40%, while the current preferred share price is $96.20 and the dividend per share is $9.

The company's common stock is trading at $25.50, its dividend payout this year is $1.15, and the growth rate of the dividend is 8.5%.         

Leases are at an average cost of 8%.         

Show your calculations in detail and explain your reasoning.

Explanation / Answer

Cost of Equity = (1.15*1.085)/25.50 +0.085 = 13.39%

Cost of Debt = 8*0.60 = 4.80%

Cost of leases = 8%

Cost of Prefered stock = 9/96.20 = 9.356%

WACC = 950/3120 * 4.80 + 1650/3120*13.39 + 20/3120*8 + 500/3120*9.356 = 10.09 %

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.