Reference no: EM132736109

Problem 1: Calculate the WACC which represents the "hurdle rate" for a typical project with average risk using the average rate of the range of the marginal cost of common equity using retained earnings or new earnings.

1. A 10-year, 10% coupon, semiannual payment non-callable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost
2. A 10%, $1,000 par value, annually dividend, perpetual preferred stock sells for $1,111.
3. Both an existing common stock and a new common stock issue, which incurs no flotation cost, sells for $100. D1 = $4.3995 and g = 5%. B = 1.2; rRF = 7%; RM = 10%.
4. Bond-Yield Risk Premium = 4%.
5. Target capital structure: 30% debt, 10% preferred, 60% common equity. Tax rate is 40%.