Consider the Firm XYZ, with the following information, AND show all work to solve the subsequent parts: • Marginal corporate tax rate of XYZ is 34% • The company wants to maintain its current capital structure, which is 40% equity, 20% preferred stock, and 40% debt. • Firm XYZ has a beta of 0.8, the yield on Treasury bonds is 1.3%, and the expected return on the market portfolio is 6%. The current stock price is $44.37, and the firm has just paid an annual dividend of $1.28, which is expected to grow by 4% per year. New equity would come from retained earnings, which would eliminate flotation costs. The firm's preferred stock pays an annual dividend of $4.10 in perpetuity, and each share is currently priced at $135.26. New stock would be issued by private placement with no flotation costs. The firm has one bond issuance outstanding, with a coupon rate of 6%, paid semiannually, with 10 years to maturity, and $864.10 as the current price. New bonds would be issued by private placement with no flotation costs. a) What is the formula for WACC? b) What is the cost of debt for the firm?

Consider the Firm XYZ, with the following information, AND show all work to solve the subsequent parts: • Marginal corporate tax rate of XYZ is 34% • The company wants to maintain its current capital structure, which is 40% equity, 20% preferred stock, and 40% debt. • Firm XYZ has a beta of 0.8, the yield on Treasury bonds is 1.3%, and the expected return on the market portfolio is 6%. The current stock price is $44.37, and the firm has just paid an annual dividend of $1.28, which is expected to grow by 4% per year. New equity would come from retained earnings, which would eliminate flotation costs. The firm's preferred stock pays an annual dividend of $4.10 in perpetuity, and each share is currently priced at $135.26. New stock would be issued by private placement with no flotation costs. The firm has one bond issuance outstanding, with a coupon rate of 6%, paid semiannually, with 10 years to maturity, and $864.10 as the current price. New bonds would be issued by private placement with no flotation costs. a) What is the formula for WACC? b) What is the cost of debt for the firm?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 7P

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