Estimate their cost of capital

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Reference no: EM131933831

Angell Inc. hired you as a consultant to help them estimate their cost of capital. You have been provided with the following data:

Target capital structure is 40% debt, 15% preferred, and 45% common Tax rate is 25%.

The before-tax cost of debt is 8.00%,

The cost of preferred stock is 7.5%

The cost of retained earnings is 74%

It expects to pay $3.40 dividend at the end of this year and its expected constant dividend growth rate is 4.0%, and its common stock currently sells for $35.00 per share. Flotation cost can be ignored. (3 points)

a. If the firm uses retained earnings and does not issue any new What is its WACC?

b. If the firm raise new common equity, how much higher will Angell Inc.’s WACC be?

Reference no: EM131933831

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