Determine the company weighted average cost of capital

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Reference no: EM131064737

Scenario: Ace Inc. is trying to determine the company's weighted average cost of capital (WACC). Use the following information to make the calculation for them. Ace's stock has a current market price of $52.25 share and the company expect to pay a dividend next year of $3 per share. Dividends have been growing at a constant rate of 5% a year and are expected to continue that pattern. The company also has a small amount of preferred stock outstanding that currently sells for $107 per share and pays an 8% of par value ($100) dividend. Ace also has one bond issue outstanding that has a 7% coupon rate and pays interest annually. Those $1,000 par value bonds currently have 9 years remaining to maturity and are selling for $941 each. The total market value of the company's common stock is $45 million, preferred stock $6 million, and debt is $33 million. Ace's marginal tax rate is 15%. what weights would you use for ACE's debt, common stock, and preferred stock? Calculate Ace's after-tax cost of debt? Calculate Ace's cost of preferred stock? Calculate Ace's cost of common stock? Calculate Ace's WACC? Ace is considering investing in a project and can borrow money at 5% what discount rate should ACE use and why? How would your answer change if the company did not expect dividends to increase in the future? How would your answer change if the company's bonds paid semi-annual interest payments?

Reference no: EM131064737

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