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1.You have collected the following information:...

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1.You have collected the following information: a.the yield on your company's preferred stock 8% b.the yield on your company's debt 10% c.the required return on your company's common stock and internal equity 12% d.debt total $5,000,000 e.preferred stock current market value $10,000,000 f.common stock and retained earnings total value $20,000,000 a) Calculate the pre-tax weighted average cost of capital (WACC) for your company. b) Your company's marginal income tax rate is 40%. Please calculate the post tax WACC from the information provided in problem one. c) Your company has approved a capital projects budget for the next year of 10 million dollars. Using the information from problems one and two: a.Calculate the post tax WACC when this ten million dollars is received assuming the entire amount is funded with common stock and the required return of the new common stock is also 12 percent. (10 points) b.Calculate the post tax WACC when this ten million dollars is received assuming the entire amount is funded with debt and the yield of the new debt is also 10 percent. (5 points) c.What are the advantages and disadvantages of each funding option for your 10 million dollar capital program next year? (100% debt or 100% equity options) (5 points)

 

Paper#13685 | Written in 18-Jul-2015

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