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WACC-part A:

Copernicus, Inc. has determined that its target capital structure will be 60% debt, 10 percent preferred stock, and 30% common stock. As the financial manager, the CFO has informed you that the company's before tax cost of debt is 10%, preferred stock is 14%, and common stock is 16%. In addition, the company's marginal tax rate is 40 percent. Based on the information provided, find out the weighted average cost of capital (WACC).

WACC-part B:
Kepler, Inc. has estimated that its target capital structure will be 30% debt, 15 percent preferred stock, and 55 percent common stock. Also, the company's provides the following data:

Bond coupon rate 
11%

13%

Bond yield to maturity

Dividend, expected common 
$10.00

$3.00

Dividend, preferred

Price, common 
$98.00

$50.00

Price, preferred

Growth rate

8%

 

Corporate tax rate

30%

 

Based on the data provided, compute the firm's weighted average cost of capital (WACC).

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918956

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