Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 8.2%, and itscost of preferred stock is 9.3%.If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise newcommon equity, it will carry a cost of 14.2%.If its current tax rate is 25%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equitycapital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to twodecimal places.)1.24%1.10%O 0.92%O 1.01%Turnbull Co. is considering a project that requires an initial investment of $270,000. The firm will raise the $270,000 in capital by issuing $100,000 ofdebt at a before-tax cost of 10.2%, $30,000 of preferred stock at a cost of 11.4%, and $140,000 of equity at a cost of 14.3%. The firm faces a taxrate of 25%. What will be the WACC for this project?(Note: Round your intermediate calculations to three decimal places.)Consider the case of Kuhn Co.Kuhn Co. is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 45% debt, 4% preferredstock, and 51% common equity. Kuhn has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rateof 11%, and a market price of $1555.38. The yield on the company's current bonds is a good approximation of the yield on any new bonds that itissues. The company can sell shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share.Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Itscommon stock is currently selling for $22.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs willrepresent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a taxrate of 25%. What will be the WACC for this project?(Note: Round your intermediate calculations to two decimal places.)

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

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Problem 14P

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Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 25%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places.) 0.92% 0.78% 1.01% 0.83% Turnbull Co. is considering a project that requires an initial investment of $570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 10.2%, $20,000 of preferred stock at a cost of 11.4%, and $320,000 of equity at…
Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 25%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings?
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 25%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places.) 0.85% 0.75% 0.65% 0.72% Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,708,000 in capital by issuing $750,000 of debt at a before-tax cost of 8.7%, $78,000 of preferred stock at a cost of 9.9%, and…
The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of common equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is 8 percent, and the firm’s tax rate is 35 percent, what is QM’s weighted average cost of capital?
Sandhill Co. has a capital structure, based on current market values, that consists of 35 percent debt, 19 percent preferred stock, and 46 percent common stock. If the returns required by investors are 12 percent, 13 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Sandhill’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent.
Cullumber Co. has a capital structure, based on current market values, that consists of 40 percent debt, 19 percent preferred stock, and 41 percent common stock. If the returns required by investors are 9 percent, 11 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Cullumber’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent. - After tax WACC = ?%
Swirlpool, Inc. has found that its cost of common equity capital is 18 percent, and its cost of debt capital is 8 percent. The firm is financed with 60 percent common shares and 40 percent debt. What is the after-tax weighted average cost of capital for Swirlpool, if it is subject to a 40 percent marginal tax rate?
Baron Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 22 percent. a. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Walther enterprises has a capital structure target of 60 percent common equity, 15 percent preferred stock, and 25 percent long-term debt. Walther’s financial analysts have estimated the marginal after tax cost of debt, preferred stock, and common equity to be 5 percent, 8.5 percent, and 11 percent, respectively. What is the weighted marginal cost of capital for Walther?
ShweDay C. has a total long term capital of $850,000; of which 25% is long-term debt, $100,000 is preferred stock, and the rest is common equity. Its after-tax cost of debt is 5.5 percent, the cost of preferred stock is 6.5 percent, and the cost of common equity is 13 percent. What is ShweDay’s WACC? (Answer in word form please)
Triple8 C. has a total long term capital of $850,000; of which 25% is long-term debt, $100,000 is preferred stock, and the rest is common equity. Its after-tax cost of debt is 5.5 percent, the cost of preferred stock is 6.5 percent, and the cost of common equity is 13 percent. What is Triple8’s WACC?
Shaw Communications is currently financed with 30% equity, 10% preferred stock, and 60% debt. It has a cost of equity capital of 11%, a cost of preferred stock of 7.5%, and its pretax cost of debt is 6%. If the firm has a tax rate of 30%, what is Shaw's weighted average cost of capital (WACC) ?

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