Looking for something else?

Not the answer you are looking for? Search for more explanations.

## More answers

Looking for something else?

Not the answer you are looking for? Search for more explanations.

- anonymous

Hey guys can you please help me solve this problem.
Calculate the Weighted Average Cost of Capital (WACC) for a company with the following capital structure (20 points)?
- 15,000,000 shares of common stock outstanding at current market price of $2.75/share
- 2,000,000 shares of preferred stock with par value of $10.00/share and paying an annual dividend of 8.5%
- Long-term debt of $45,000,000 with an interest rate of 7%
The combined federal and state tax rate is 38% and you can assume that equity investors in the company are looking to achieve the long-term stock market return of 12.5%

At vero eos et accusamus et iusto odio dignissimos ducimus qui blanditiis praesentium voluptatum deleniti atque corrupti quos dolores et quas molestias excepturi sint occaecati cupiditate non provident, similique sunt in culpa qui officia deserunt mollitia animi, id est laborum et dolorum fuga.
Et harum quidem rerum facilis est et expedita distinctio. Nam libero tempore, cum soluta nobis est eligendi optio cumque nihil impedit quo minus id quod maxime placeat facere possimus, omnis voluptas assumenda est, omnis dolor repellendus.
Itaque earum rerum hic tenetur a sapiente delectus, ut aut reiciendis voluptatibus maiores alias consequatur aut perferendis doloribus asperiores repellat.

Get our expert's

answer on brainly

SEE EXPERT ANSWER

Get your **free** account and access **expert** answers to this

and **thousands** of other questions.

Get your **free** account and access **expert** answers to this and **thousands** of other questions

- anonymous

- jamiebookeater

I got my questions answered at brainly.com in under 10 minutes. Go to brainly.com now for free help!

Get this expert

answer on brainly

SEE EXPERT ANSWER

Get your **free** account and access **expert** answers to this

and **thousands** of other questions

- anonymous

this is to the best of my knoeledge.. i have tried to answer.. see the atttached file... correct me if i am wrong

- anonymous

The problem that i have is that I dont know how to find Rd and Re
in the problem this is where i am stuck once I have this I am good to go

- anonymous

Looking for something else?

Not the answer you are looking for? Search for more explanations.

- anonymous

10*2`000`000 is par value of pref. stocks, not market value.
So I think you should calculate market value of pref. stocks as (10*0.085/0.125)*2`000`000.
It would change weights, that Sevak Manukyan calculated, to common stocks = 41.31%; preferred stocks = 13.62%; debt = 45.07%, and WACC would be 8.28%, that is pretty close.

- anonymous

what is Rd and Re

- anonymous

I'm not exactly sure of this but perhaps in the simplest format:
total value of the firm = 15M*2.75 + 2M*10 + 45M
WACC = 12.5%*15M/(15M*2.75 + 2M*10 + 45M)+8.5%*2M/(15M*2.75 + 2M*10 + 45M) + 7%*45M/(15M*2.75 + 2M*10 + 45M)
There are 3 different components, with respect to the common shares, preferred shares and debt components. It's just a weighted average cost of each category of capital.
Hope this helps.

- anonymous

Michael is almost right... Just remember to multiply the cost of debt (7%) by (1-tax rate)

- anonymous

Ah right. Thank you Prof.

Looking for something else?

Not the answer you are looking for? Search for more explanations.