New state-of-the-art manufacturing facility

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Reference no: EM131558592

TDJ Corp. needs $6.4 million in capital for its new state-of-the-art manufacturing facility. The current financing plan is 45% equity capital and 55% debt financing. Compute the WACC based on the following scenario if the company's effective income tax rate is 37.5%.

Debt Financing: 47% of the amount will be obtained through a bank loan at 10.6% per year and the remaining amount will be obtained through an issue of corporate bonds at a bond rate of 11.7% per year.

Equity Financing: 25% of the amount will be obtained through the issue of common stock that pays a dividend of 4.8% per year and 36% of the amount will be obtained through the issue of preferred stock that pays a dividend of 11.2% per year. The remaining amount will be taken from retained earnings that earn a rate of 7.5% per year.

Reference no: EM131558592

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