Calculating WACC for Garner Data System
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Garner Data Systems - Comprehensive Problem
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Solution Summary
The solution explains how to calculate the WACC where the capital structure consists of bonds, preferred stock and common stock.
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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 ...
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