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Calculating WACC for Garner Data System

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Garner Data Systems - Comprehensive Problem

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Garner Data Systems - Comprehensive Problem

a. The cost of bond will be the after tax yield on the existing debt. The current market yield on similar rated debt is 11.2%. The tax rate is 35%. The after tax cost of debt is 11.2%X(1-0.35) = 7.28%

b. A preferred stock is a perpetuity and the cost is given as Dividend/Price. For calculating the cost we also take the flotation cost into ...

Solution Summary

The solution explains how to calculate the WACC where the capital structure consists of bonds, preferred stock and common stock.