
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Question 14
Your company has compiled the following data which is based on current costs
relative to its sources of external capital ie long-tem debt, preferred stock and
common stock equity for various ranges of financing.
Source af Capital
Long-lerm debt
Range of Total New Financing
O to
After-tax Cost
4 %
1697594
8
1697595 to
3259148
12
3259149 to
above
Proferred stock
17
O 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
Curent retained earmings in coming year
Cost of rotained eamings based on current eanings
The target capital structure proportions are:
Target capital structure
Long-term debt
628988
18 %
32 %
Preferred stock
11 %
Equity
57 %
Calculate the WACC prior to he firm exhausting its retained earrings
Answer
The firm expects its range of total new financing to be
Calculate the WACC based on new range.
Answer
3156574
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