What is the weighted-average cost of capital

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Question 1. Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) The firm's bonds have YTM of 6.5%. (2) The company's tax rate is 30%. (3) The risk-free rate is 3.5%, the market risk premium is 6%, and the stock's beta is 1.2. (4) The target capital structure has a debt to equity ratio equals to 3. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

Question 2. What is the weighted-average cost of capital for a firm with the following sources of funds and corresponding required rates of return: $6 million common stock at 11%, $2 million preferred stock at 8%, and $4 million debt at 6%. All amounts are listed at market values and the firm's tax rate is 30%.

Reference no: EM133432476

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