3) X Corporation wants to calculates its cost of capital for major expansion program which riskier than the risk level of its current operations ⚫ Tax rate=30%. • 30-year, 10% coupon, annual payment noncallable bonds sell for $1,200. New bonds will be privately placed with no flotation cost. ⚫ 10%, $100 par value, quarterly dividend, perpetual preferred stock sells for $98.50. ⚫ Common stock sells for $100. Do= $8.19 and g=4%. b=0.9; TRF 4%; RPM = 5%. Bond-Yield Risk Premium = 3%. If the weight of debt is 30%, weight of equity is 60% and weight of preferred stock is 10%. a. What is the WACC of X corporation. (Show your calculation for each component of WACC and the overall WACC) b. What should be the appropriate discount rate for the expansion program.
3) X Corporation wants to calculates its cost of capital for major expansion program which riskier than the risk level of its current operations ⚫ Tax rate=30%. • 30-year, 10% coupon, annual payment noncallable bonds sell for $1,200. New bonds will be privately placed with no flotation cost. ⚫ 10%, $100 par value, quarterly dividend, perpetual preferred stock sells for $98.50. ⚫ Common stock sells for $100. Do= $8.19 and g=4%. b=0.9; TRF 4%; RPM = 5%. Bond-Yield Risk Premium = 3%. If the weight of debt is 30%, weight of equity is 60% and weight of preferred stock is 10%. a. What is the WACC of X corporation. (Show your calculation for each component of WACC and the overall WACC) b. What should be the appropriate discount rate for the expansion program.
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 8P
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Transcribed Image Text:3) X Corporation wants to calculates its cost of capital for major expansion program which
riskier than the risk level of its current operations
⚫ Tax rate=30%.
• 30-year, 10% coupon, annual payment noncallable bonds sell for $1,200. New bonds
will be privately placed with no flotation cost.
⚫ 10%, $100 par value, quarterly dividend, perpetual preferred stock sells for $98.50.
⚫ Common stock sells for $100. Do= $8.19 and g=4%.
b=0.9; TRF 4%; RPM = 5%.
Bond-Yield Risk Premium = 3%.
If the weight of debt is 30%, weight of equity is 60% and weight of preferred stock is 10%.
a. What is the WACC of X corporation. (Show your calculation for each component of
WACC and the overall WACC)
b. What should be the appropriate discount rate for the expansion program.
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