please answer all or none. a. For the following company, what is the correct wei

ID: 2793461 • Letter: P

Question

please answer all or none.

a. For the following company, what is the correct weight of the company's common stock?

Preferred stock $350 million, Bonds $400 million, Common $685 million.

b. What is the cost of the following preferred stock?

Price $32.55 per share. Dividend $4.11 per share.

c. What is the cost of the following common stock?

Price $44.82 per share. Dividend $1.56 per share. Expected growth rate 6% per year.

d. What is the cost of the following bond?

Maturity 20 years, Face value $1,000, coupon 8%, Yield 9%, tax rate 22%

e. Calculate the WACC for the following:

Bonds $100 million (with a cost of 8%), common $200 million (with a cost of 6%), Preferred $50 million (with a cost of 9%).

a. Total capital = preferred stock + bonds + common stock

Total capital = 350+400+685

Total capital = $1,435 millions

weight of common stock = 685/1435 = 0.48

b. Price = Dividend/cost of preferred stock

32.55 = 4.11/cost of preferred stock

cost of preferred stock = 4.11/32.55

cost of preferred stock = 12.63%

c. Price = Dividend * (1+growth rate)/(cost of common stock - growth rate)

44.82 = (1.56 * 1.06)/(cost of common stock - 0.06)

cost of common stock - 0.06 = 0.037

cost of common stock = 0.037 + 0.06

cost of common stock = 0.969

cost of common stock = 9.69%

d. Price of bond = Coupon1/(1+yield) + Coupon2/(1+yield)2 + Coupon3/(1+yield)3 + ......................+ Coupon20+face value)/(1+yield)20

Price of bond = 80/1.09 + 80/1.092 + 80/1.093 + ................ + 1080/1.0920

Price of bond = $908.71

e. weights :

total capital = 100 + 200 + 50 = $350 millions

bond = 100/350 = 0.29

common = 200/350 = 0.58

Preferred = 50/350 = 0.13

WACC = 0.29 * 0.08 + 0.58 * 0.06 + 0.13 * 0.09

WACC = 0.0232 + 0.0348 + 0.0117

WACC = 6.97%

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