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XYZ manufacturing company is considering a major expansion program that has been proposed by the company's information technology manufacturing group. Before proceeding with the expansion, the company must estimate its cost of capital. Assume you are the CFO of the company. Your first task is to estimate XYZ's cost of capital. Your analysts have provided you with the following data, which they believe may be relevant to your task.
Tax rate
40%
Bond info
Coupon
Semiannual payment
Years
Price
12%
15 years
1153.72
Preferred stock
Par value
Quarterly Div
Current Price
Dividend Payout Ratio
100
10%
111.1
.94
Common stock
Last year's Dividend
ROE
Beta
T-bond yield
Market Return Rate
4.19
.041
1.2
7%
13%
Capital Structure
Debt
35%
20%
45%
1. What sources of capital should be included when you estimate XYZ's WACC? Also, what is WACC a measure of?
2. What is the market interest rate on XYZ's debt and its component of after-tax cost of debt?
3. What is the firms cost of preferred stock?
4. What is XYZ's required rate of return on common equity?
5. What is XYZ's growth rate?
6. What is XYZ's current stock price?
7. What is XYZ's WACC?
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