Calculate the WACC for capital budget for dollars less than $5 million
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Assume the following:
Expected component costs of capital:
After tax cost of debt = 6%
Cost of preferred stock = 7%
Cost of retained earnings = 10%
Current mix of market value capital sources:
Total debt = $200,000,000
Total preferred stock = 100,000,000
Total common stock = 200,000,000
Total Liabilities and Equity = 500,000,000
Additional information:
Tax rate = 38%
Equity break point in MCC due to exhausting the supply of retained earnings = $5,000,000
Calculate the WACC for capital budget for dollars less than $5 million, if the firm chooses to maintain its current market value capital structure.
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Solution Summary
The expert calculates the WACC for capital budgeting for dollars less than $5 million.
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Weight of debt in capital structure = 200 million / 500 million = 40%
Weight of preferred stock in capital structure = 100 million / 500 ...
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