Question 14 Your company has compiled the following data which is based on current costs relative to its sources of external capital ie long-term debt, preferred stock and common stock equity for various ranges of financing. Source of Capital After-tax Cost Range of Total New Financing 0 to Long-term debt 4 % 1697594 8 1697595 to 3259148 12 3259149 to above Preferred stock 17 0 to 936034 22 936035 to above Common stock equity 18 0 to 1141333 21 1141334 to 2808705 25 2808705 to 3549127 26 3549127 to above Current retained earnings in coming year Cost of retained earnings based on current earnings 628988 18 % The target capital structure proportions are: Target capital structure Long-term debt 32 % Preferred stock 11 % Equity 57 %

None

Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…

Calculate the Weighted Average Cost of Capital (WACC) Cost of Equity = 11.02% Cost of Debt = 5.35% Debt-to-Equity Ratio = 15.52%

Table 9.1 A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Source of Capital Long-term debt Preferred stock Common stock equity Target Market Proportions OA. 8.13 percent OB. 4.67 percent OC. 8 percent O D. 3.25 percent 20% 10 70 Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of 2 percent of the face value would be required in addition to the discount of $40. Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: A firm's common stock is currently selling for $18 per share. The dividend expected to be paid at the end of the coming year is $1.74. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was $1.50. It is expected that to sell, a new…

OPTIMAL CAPITAL STRUCTURE Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels: Debt/Capital Ratio    Projected EPS    Projected Stock Price20%    $3.10    $34.2530    3.55    36.0040    3.70    35.5050    3.55    34.00Assuming that the firm uses only debt and common equity, what is Terrell’s optimal capital structure? At what debt-to-capital ratio is the company’s WACC minimized?

1

The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. Q1. ________is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation.   Q2. Avery Co. has $3.9 million of debt, $2 million of preferred stock, and $2.2 million of common equity. What would be its weight on debt?   a. 0.27   b. 0.25   c. 0.48   d. 0.20 Q1. Option 1 rS or Option 2 rD or Option 3 rP or Option 4 rE   Please provide the correct answers. Thank you!