Compute the wacc for the financing scenario

Reference no: EM13204316

Tiffany Baking Co. wants to arrange a $50 million in capital for manufacturing a new consumer product. The current financing plan is 60% equity capital and 40% debt capital. Compute the WACC for the following financing scenario.

Equity capital: 60%, or $30 million, via common stock sales for 40% of this amount that will pay dividends at a rate of 5% per year, and the remaining 60% from retained earnings, which currently earn 9% per year.

Debt capital: 40% or 20 million, obtained through two sources - bank loans for $10 million borrowed at 8% per year, and the remainder in convertible bonds at an estimated 10% per year bond interest rate.

Reference no: EM13204316

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