finance

Project Description:

fall 2012 section # ac220 date

1. hatter inc. has the following capital components and costs. calculate hatter's wacc.

component value cost
debt 15,500 10%
preferred stock 7,500 12%
common equity 10,000 14%


wacc =




2. overland's preferred stock was issued 3 years ago to yield 10% of its par value of $30. the stock is selling in the market today for $50. assuming that overland pays 15% in flotation costs on new security issues, calculate the cost of preferred stock financing.


cost of preferred stock financing =





3. the target capital structure for petersen, inc. is 30% debt, 20% preferred stock and 50% equity. the after-tax cost of debt is 6%; the cost of preferred stock is 10% and the cost of equity is 14%. (floatation costs are already included in the costs of preferred stock and equity.) what is petersen's wacc based on the target capital structure?


wacc =




4. if a firm has flotation costs of 20% and does not want to pay more than 17% return for a particular security issue. what rate of return is the firm willing to offer the investor?


rate of return =
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