SOLUTION: bonds: currently sell for 94.94 with 13 years to maturity. annual coupon rate is 11.25% and interest rate is paid every six month. company's tax rate is 40%. preffered stock: the

Question 768367: bonds: currently sell for 94.94 with 13 years to maturity. annual coupon rate is 11.25% and interest rate is paid every six month. company's tax rate is 40%.
preffered stock: the company has also issued a 6.75% preffered stock with $10.00 par value. the preffered stock is currently being traded at $6.50.
common stock: its common stock is selling for $5.25. last dividend paid was 65 cents per share. constant growth rate is 6%. new common stock issue will attract a flotation cost of 9% per share.
targeted capital structure:
debt: 30%; preffered: 20% common stock equity: 50%

a) what is the WACC if the company has sufficient retained earnings to fund the equity portion of its investment?
b)what is the company's WACC, aasuming the company has exhausted all its retained earnings and must issue new common stocks to finance its
investment?

Answer by 778797(1) (Show Source): You can put this solution on YOUR website!
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