The capital components to finance investment

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The Tandoori Oriental Restaurant has a target capital structure of 65% common equity, and, respectively, 20% and 15% for debt and preferred stock. The company wants to expand by investing $25 million in new projects. The company wants to maintain this target for the new investment as well.

A. Calculate the amounts needed from each of the capital components to finance this investment.

B. Furthermore, the cost of debt (after taxes) for this company is 9.5%, while the cost of preferred stock is 10%. In addition, the cost of internal equity financing is 7.5%. The company has noted that it can only provide $10 million from its internal sources to this investment pool. It can issue new common stocks, but this will be accompanied by a premium of 1.5% for issuance costs. Calculate the cost of external equity financing.

C. Calculate the weighted average cost of capital (WACC).

Reference no: EM131608475

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