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Computation of WACC for a firm
WACC-part a: Copernicus, Inc. has determined that its target capital structure will be 60% debt, 10% preferred stock, and 30% common stock. As the financial manager, the CFO has informed you that the company's before tax cost of debt is 10%, preferred stock is 14%, and common stock is 16%. In addition, the company's marginal tax rate is 40%. Based on the information provided, calculate the weighted average cost of capital (WACC).
WACC-part b: Kepler, Inc. has determined that its target capital structure will be 30% debt, 15% preferred stock, and 55% common stock. Also, the company's provides the following information:
Bond coupon rate 11%
13%
Bond yield to maturity
Dividend, expected common $10.00
$3.00
Dividend, preferred
Price, common $98.00
$50.00
Price, preferred
Growth rate
8%
Corporate tax rate
30%
Based on the information provided, calculate the firm's weighted average cost of capital (WACC).
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