Reference no: EM132753256
Question - METRA is considering building a new train line from Chicago to Utopia. Use the following information to help Metra determine their cost of capital to assess the project:
-Debt totals $150 million with a 5% coupon and has been outstanding for 2 years
-Common stock (14 million shares outstanding) now trade at $25 per share
-Bonds similar to METRA's existing debt are currently priced at 103.5
-The common stock will pay an annual dividend of $1.20 next year, up from $0.90 five years ago.
-METRA pays a corporate tax rate of 21%.
-The risk-free rate is 3%, the market return is 9%
-Metra's common stock Beta is 1.4
Required -
1. What debt and equity weights will Metra use to calculate WACC?
2. What is METRA's cost of debt?
3. What is METRA's cost of common equity?
4. What is METRA's WACC?
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