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Cost of Equity and WACC for Micro Spinoffs, Inc.

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Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 8 percent, paid annually. Today, the debt is selling at $1,050. The firm's tax bracket is 35 percent.

Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $40.

Suppose Micro Spinoffs's cost of equity is 12.0 percent. What is its WACC if equity is 50 percent, preferred stock is 20 percent, and debt is 30 percent of total capital?

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This solution shows how to determine the cost of equity and WACC with formula and step-by-step calculations. These are provided in plain text and formatted in an attached Word document.

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Cost of Equity and WACC
Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 8 percent, paid annually. Today, the debt is selling at $1,050. The firm's tax bracket is 35 percent.

Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $40.

Suppose Micro Spinoffs's cost of equity is 12.0 percent. What is its WACC if equity is 50 percent, preferred stock ...

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