Tammuz Enterprises, a public shareholding company, wants to calculate its weighted average cost of capital WACC. It has raised AED 1,000 million in capital (funds) distributed as follows: AED million 50 as preferred stock, AED 400 million as common stock and AED 550 million from debt (bonds). The firm has a marginal tax rate of 30 percent and it borrows at a coupon rate of 12 percent it pays to its bondholders. The price of its preferred stock is AED 80 and the dividend it pays to these stockholders is AED 6. The current flotation cost it would incur if it issued new preferred stock, is 2 percent. Furthermore, the firm’s stock beta coefficient is 0.95 and the risk-free return rate is 6 percent while the required market return rate is 13 percent. Using the above information, First, calculate the component cost of each source of capital and then calculate the WACC for the firm. Show you work step by step

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Tammuz Enterprises, a public shareholding company, wants to calculate its weighted average cost of capital WACC. It has raised AED 1,000 million in capital (funds) distributed as follows: AED million 50 as preferred stock, AED 400 million as common stock and AED 550 million from debt (bonds). The firm has a marginal tax rate of 30 percent and it borrows at a coupon rate of 12 percent it pays to its bondholders. The price of its preferred stock is AED 80 and the dividend it pays to these stockholders is AED 6. The current flotation cost it would incur if it issued new preferred stock, is 2 percent. Furthermore, the firm’s stock beta coefficient is 0.95 and the risk-free return rate is 6 percent while the required market return rate is 13 percent. Using the above information, First, calculate the component cost of each source of capital and then calculate the WACC for the firm. Show you work step by step

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