Calculate the firms cost of retained earnings

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Reference no: EM132061789

A firm is planning for major expansion of its production facility.

-Tax rate: 35%

-The firm has 10 year bonds outstanding that pay 9% coupon annually and currently sell for $1,192.00

-The company has 8% preferred stock with a par value of $25, which currently sells for $26.15

-The common stock currently sells for $75.00, currently pays a $3.00 dividend annually, and the dividend grows grows 5% per year.

-the company stocks beta= .95, the risk free rate is 3% and the market risk premium is 7%

-the firms capital structure is 40% debt, 50% common equity and 10% preferred stock.

1. Calculate firms after tax cost of debt

2. Calculate firms cost of preferred stock

3. Calculate the firms cost of retained earnings ( equity)

4. Determine the company’s weighted average cost of capital

5. What is this WACC used for? Explain

Reference no: EM132061789

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