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    WACC and Market Capital Structure

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    Calculate the following based on the information below:

    1. The company's market capital structure.

    2. The WACC the firm should use when evaluating a new investment by discounting the project's cash flow.

    a. 7.5 million shares of common stock outstanding, and currently selling for $64 per share with a beat of 1.2

    b. 500,000 shares of 7% preferred stock outstanding, and currently selling for $108 per share

    c. 175,000 of 8.2 % semi-annual bonds outstanding, par value $1,000 each; with 15 years remaining to maturity; and currently selling for 96 % of par value.

    d. The market risk premium is 6.8% and the risk free rate is 5.5%

    e. Tax rate is 34%

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    Solution Preview

    (1) The company's market capital structure is

    Common Stock = $480m (7.5m * $64)
    Preferred Stock = $54m ( 0.5m * $108)
    Debt = $168m ( 0.175m ...

    Solution Summary

    The solution computes weighted average cost of capital along with calculating required rate of return for equity, weight of debt & equity.