Reference no: EM132523693

You have been hired as a consultant by Aerospace Exploration, Inc. (AEI). AEI is publically traded company and a leader in space travel. The company is looking to setup an outpost on the moon, where visitors can experience space living over a 2 week visit (including travel time). AEI owns land which has a book value of $7.3 million and a market value of $7.5 million. The following market data is available:

Debt: 260,000; 6.1% semi-annual coupon bonds outstanding with 25 years to maturity. Current bond price is $1,040. Bond was issued at $1,000

Common stock: 9,900,000 shares outstanding with a current share price of $68/share. Stock beta is 1.2

Preferred stock: 400,000 shares which pay $4.20 dividend. Currently, selling at $87/share

Market: 7 percent expected market risk premium; 3.1 percent risk free rate; tax rate is 21%

Calculate the weighted average cost of capital (WACC). (show all of your work)

WACC = wd x Rd x (1 - T) + wcs x Rcs + wps x Rps

wd = weight of debt wcs = weight of common stock wps = weight of preferred stock

Rd = cost of debt (solve using TVM calculator i)

Rcs = cost of common stock (use CAPM )

Rps = cost of preferred stock