Reference no: EM132547810

The capital structure for Mills Corporation is shown below. Currently, flotation costs are 13% of market value for a new bond issue and $3 per share for preferred stock. The dividends for common stock were $2.50 last year and have an estimated annual growth rate of 6%. Market prices are $1,050 for bonds, $20 for preferred stock, and $40 for common stock. Assume a 34% tax rate.

Financing Type

% of Future

Financing

Bonds (8%, $1k par, 16 year maturity) 36%

Common equity 45%

Preferred stock (5k shares outstanding,

$50 par, $1.50 dividend) 19%

Total % 100%

Question 1: Compute the company's WACC.

WACC (Weighted average cost of capital) = (Cost of equity * Weight of Equity) + (Cost of preferred stock * Weight of preferred stock) + {Cost of debt(1-Tax Rate)* Weight of debt}