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1) Provided the following information, find out the weighted average cost of capital (WACC) for XYZ Company.

a) Bonds issued by XYZ pays= 8.8% annual interest, have par value of= $1,000 and twenty five years to maturity. Bonds are presently selling for= $890.78. XYZ has 25% tax rate. Determine the after-tax cost of debt?

b) Favoured stocks issued by XYZ pay the annual dividend of= $6. Favoured stock price is= $54. Compute the cost of preferred stock?

c) Common stocks issued by XYZ will pay the dividend of= $2.5 next year. Stock has the estimated growth rate of 8% and is presently selling for= $50. Beta coefficient for XYZ is= 1.25. Risk-free rate is 5% and expected return on market is= 13%. What is the best estimate for the cost of equity?

d) If XYZ’s capital structure is= 35% in debt, 25% in favoured stock, and 40% in equity, compute the weighted average cost of capital?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915073

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