Homework #6G (WACC)

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University of Maryland, University College *

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Economics

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Jan 9, 2024

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Question 1 (1 point) Saved Given the following information on Big Brothers, Inc. capital structure, compute the company’s weighted average cost of capital (WACC). The company’s marginal tax rate is 40%. Round the answer to two decimal places in percentage form. (TWrite the percentage sign in the "units" box) Type of Capital | Percent of Capital Structure | Before-Tax Component Cost Bonds 31% 11.08% Preferred Stock 18% 15.94% Common Stock Please calculate it 17.69% Your Answer: Answer units Question 2 (1 point) Saved The Black Bird Company plans an expansion. The expansion is to be financed by selling $142 million in new debt and $147 million in new common stock. The before-tax required rate of return on debt is 10.21% percent and the required rate of return on equity is 16.49% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital? Round the answer to two decimal places in percentage form. (TWrite the percentage sign in the "units" box) Your Answer: Answer units

Question 3 (1 point) Saved Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm's tax rate is 35%. Calculate the firm's WACC adjusted for taxes using the market information in the table. Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) The Number of Securities Selling | The Required Rate of Outstanding price Return Bonds 1,850 $1,046 11.20% Preferred 4117 $56.58 15.75% Stocks Common 1,250 $122.06 1124% Stocks Your Answer: Answer units.

Question 2 0/1 point The Black Bird Company plans an expansion. The expansion is to be financed by selling $142 million in new debt and $147 million in new common stock. The before-tax required rate of return on debt is 10.21% percent and the required rate of return on equity is 16.49% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital? Round the answer to two decimal places in percentage form. (WWrite the percentage sign in the "units" box) Answer: 12.74 % (11.70) % v Question 3 0/1 point Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm's tax rate is 35%. Calculate the firm's WACC adjusted for taxes using the market information in the table. Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) The Number of Securities Outstanding| Selling price | The Required Rate of Return Bonds 1,850 $1,046 11.20% Preferred Stocks 4,117 $56.58 15.75% Common Stocks 1,250 $122.06 11.24% Answer: 7.30 x (8.39) % v

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