WACC CALM (Carley, Alison, Lexy and Marimar) Corporation has the following chara
ID: 2755057 • Letter: W
Question
WACC CALM (Carley, Alison, Lexy and Marimar) Corporation has the following characteristics: Debt 40% Preferred Stock 10% Common Stock 50% Tax Rate 40% US Ten Year Treasury Bond Yield 2% Market Risk Premium 8% Beta 1.5 New Preferred Stock Price 100 Flotation Costs for Preferred 10 Dividend per share (preferred) 8 Debt Yield to Maturity 7% What is their WACC? WACC CALM (Carley, Alison, Lexy and Marimar) Corporation has the following characteristics: Debt 40% Preferred Stock 10% Common Stock 50% Tax Rate 40% US Ten Year Treasury Bond Yield 2% Market Risk Premium 8% Beta 1.5 New Preferred Stock Price 100 Flotation Costs for Preferred 10 Dividend per share (preferred) 8 Debt Yield to Maturity 7% What is their WACC?Explanation / Answer
Cost of debt = 7%(1- 0.40)
= 4.20
Cost of preferred stock = Preference dividend / Net proceeds
= 8/90 i.e 8.89%
Cost of equity = 2%+1.5*8%
= 14%
WACC = Cost of debt * weight of debt + Cost of equity * weight of equity + Cost of preffered stock * Weight of preferred stock
= 0.40*4.20+0.10*8.89+0.50*14
= 1.68+0.889+7 i.e 9.569%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.