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Nevada Hydro is 40 percent debt-financed and has a weighted-average cost of capital of 9.7 percent:

Banker's Tryst Company is advising Nevada Hydro to issue $75 million of preferred stock at a dividend yield of 9 percent. The proceeds would be used to repurchase and retire common stock. The preferred issue would account for 10 percent of the preissue market value of the firm. Banker's Tryst argues that these transactions would reduce Nevada Hydro's WACC to 9.4 percent:

Do you agree with this calculation? Explain

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This solution is comprised of a detailed explanation to answer if we agree with the calculation.

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Nevada Hydro is 40 percent debt-financed and has a weighted-average cost of capital of 9.7 percent:

Banker's Tryst Company is advising Nevada Hydro to issue $75 million of preferred stock at a dividend yield of 9 percent. The proceeds would be used to repurchase and retire common stock. ...

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