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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%

#### 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.

\$2.49