Reference no: EM131779443
Metallic Engineering, Inc., a manufacturer of fabricated aluminum products for aerospace, engineering, automotive, and custom industrial applications, is calculating its WACC. The firm's common stock just paid a dividend of $4.5 per share and now is selling for $80. The firm's financial staff estimates the company's new product will generate a dividend growth rate of 7%. Today the firm issued 7000 bonds that will mature in 15 years with $1,000 face value. These bonds will pay a 9% coupon rate quarterly and are currently selling for $970. The firm has 100K preferred shares of stock outstanding with a book value of $45, but currently selling for $55 per share. The last preferred dividend payments were $3.5 per share. The firm's tax rate is 40%. The firm has 200K shares of common stock outstanding with the same book value as that of its preferred stock.
a. Calculate the book value and market value weights for each source of capital. 200K shares of common stock outstanding, $4.50 dividend, Share Price $80.00 Dividend Growth Rate 7% Issued 7000 bonds, 15 yr mature date, $1000 face value, 9% coupon rate quarterly, currently selling $970 100K preferred shares of stock outstanding, book value $45, currently selling $55, preferred dividend payments $3.50 Tax rate 40%
b. Calculate the before-tax and after-tax component costs of capital (i.e., debt, preferred equity, new common equity)
c. Determine the weighted average costs of capital using both the market and the book value weights.
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