The firm weighted average cost of capital

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A) A company has target weights of debt, preferred and common equity of 20%, 10% and 70%, respectively. It has liquidation values of debt, preferred and common equity of 30%, 15% and 55%. Its book values of debt, preferred and common equity are 40%, 10% and 50%. The estimated costs, net of adjustments, to the issuer are 4%, 9% and 13% for debt, preferred and common equity. Estimate the firm's weighted average cost of capital.

B) Yield to maturity (YTM) on debt issues with risk comparable to the Sonar Company is currently 10.7%. Sonar has issued debt two years ago with a YTM of 8.00%. Sonar's common stock beta is 1.15, and its tax rate is 30. The appropriate rate for Sonar to use for debt in estimating its WACC is what rate? Show your answer as a percentage, rounded to two decimal places.

Reference no: EM132007806

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