Expansion Funds in the form of Equity: WACC
Not what you're looking for?
A company has 1,000,000 shares of common stock with a market price of $35 per share, 225,000 shares of preferred stock with a market price of $98 per share, and 10,000 bonds outstanding which are selling in the market at 97.25 percent of par. The company needs new capital of $12 million to expand its asset base. It has calculated that the after-tax cost of new equity is 12.50% and the cost of new preferred stock is 9.4%. The company's bonds are yielding 8% in the market. Corporate tax rate is 34%.
What percent of the new expansion funds must be in the form of equity and what is the weighted average cost of capital?
Purchase this Solution
Solution Summary
In this solution, we show how to calculate the percent of the new expansion funds that must be in the form of equity, and the weighted average cost of capital (WACC).
Solution Preview
The percentage needed in the form of equity will depend on the market value capital structure. We first calculate the market value of the capital components
Market value of common stock = 1,000,000 X 35 = 35,000,000
Market value of ...
Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Introduction to Finance
This quiz test introductory finance topics.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.