Compute the weightage average cost of capital

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Comfort Walking Shoe Manufacturer has seven million shares of common stock outstanding, 285,000 shares of 5 percent preferred stock outstanding, and 105,000 7.5 percent semiannual bonds outstanding, par value RM1,000 each. The common stock currently sells for RM37 per share and has a beta of 1.35, the preferred stock currently sells for RM88 per share, and the bonds have 15 years to maturity and sell for 94 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 5 percent, and the firm's tax rate is 35 percent.

Problem (i). Based on the information above, determine the firm's market value capital structure.

Problem (ii). If Comfort Walking Shoe Manufacturer is evaluating a new investment project that has the same risk as the firm's typical project, compute the Weightage Average Cost of Capital (WACC) that the firm should use to discount the project's cash flows.

Reference no: EM132936514

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